Eureka!

Alex has found it!

Willem Buiter advocates Janet Yellen for Fed Chair

Via Greg Mankiw, Buiter's nicely written piece is here. If I might sum:

1. Our Fed Chair terms of service are bad

2. The process by which the Fed Chair is appointed is bad

3. Bernanke is defending himself, in response to criticism

4. Buiter knows Yellen personally

5. Yellen has no experience as a supervisor or regulator

Perhaps my lack of intellect is a crucial factor, but why am I unconvinced?

So that's what really burns Derek Lowe's toast

Ben Domenech's view of pharmaceuticals:

So Pharma is interested in making money as their primary goal — that should surprise no one. But they’re also interested in avoiding litigation. Suppose for a moment that Pharma produces a drug to treat one non-life threatening condition, and it’s a monetary success, earning profits measured in billions of dollars. But then one of their researchers discovers it might have other applications, including life-saving ones. Instead of starting on research, Pharma will stand pat. Why? Because it doesn’t make any business sense to go through an entire FDA approval process and a round of clinical trials all over again, and at the end of the day, they could just be needlessly jeopardizing the success of a multi-billion dollar drug. It makes business sense to just stand with what works perfectly fine for the larger population, not try to cure a more focused and more deadly condition.

To which Derek responds:

Ummm. . .isn't this exactly what happened with Vioxx? Merck was trying to see if Cox-2 inhibitors could be useful for colon cancer, which is certainly deadly, and certainly a lot less common than joint and muscle pains. Why didn't Merck "stand pat"? Because they wanted to make even more money of course. They'd already spent some of the cash that would have to have been spent on developing Vioxx, and cancer trials aren't as long and costly as they are in some other therapeutic areas. So it was actually a reasonable thing to look into. If you're staying in the same dosing range, you're not likely to turn up tox problems that you didn't already see in your earlier trials. (That's where Merck got into real trouble, actually - the accusation was that they'd seen signs of Vioxx's cardiovascular problems before the colon cancer trial, but breezed past them). But you just might come up with a benefit that allows you to sell your drug to a whole new market.

And that might also explain why, in general, drug companies look for new therapeutic opportunities like this all the time with their existing drugs. In fact, sometimes we look for them so aggressively that we get nailed for off-label promotion. No, instead of standing pat, we get in trouble for just the opposite. Your patented drug is a wasting asset, remember, and your job is to make the absolute most of it while it's still yours. Closing your eyes to new opportunities is not the way to do that.

The thing is, Domenech's heart seems to be mostly in the right place. He just doesn't understand the drug industry, and neither do his NIH sources. Talking to someone who works in it would have helped a bit.

The subtle telecom tax

a.k.a. voice mail instructions.

Quotes of the day

Remember that old comic book where they had Superman race against The Flash? The Flash won. Someone had to, just keep that in mind.--Tyler Cowen

Instead of an in-depth report on the compensation practices at Wall Street firms, both past and future, the only thing we got [from Andrew Cuomo] was compensation porn.--Steven Davidoff

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined.--Scott Hodge

At birth, someone living in the Netherlands can expect to live 2.35 years longer than someone born in the US, but at age 65, the difference is reversed, and someone living in the US can expect to live 0.4 years longer than someone living in the Netherlands. This difference can be explained by assuming that semi-socialized health care is better for young and worse for old people, or, at least as likely, different policies are not the main cause of the difference.--Adam

One interesting feature of this data is that it can be used to argue for a number of different points of view.--Tyler Cowen

The worst outcome for China would be one that includes ever-rising inflation pressures, as money and credit flows augmented by "hot money" capital inflows push the inflation rate up to a level that threatens China's stability. Since that would be most likely under a scenario in which industrial economies are not recovering in the second half of the year, we could see a situation in which disappointment over the recovery in the big three economies coincides with disappointment about the sustainability of China's planned 8 percent growth path. That outcome would coincide with a likely bursting of the stock and property market bubbles that are inflating in China now on the hopes that a second-half recovery will validate China's goal of sustained 8 percent growth in 2009. --John Makin

For many years now, Americans have been putting in longer hours at work and enjoying less time at home. Since 1967, we’ve added 167 hours — the equivalent of a month’s full-time labor — to the total amount of time we spend at work each year, and in households where both parents work, the figure is more like 400 hours. Americans today spend more time working than people in any other industrialized nation — an extra two weeks or more a year. Not surprisingly, in those countries where people still take cooking seriously, they also have more time to devote to it. --Michael Pollan

So cooking matters — a lot. Which when you think about it, should come as no surprise. When we let corporations do the cooking, they’re bound to go heavy on sugar, fat and salt; these are three tastes we’re hard-wired to like, which happen to be dirt cheap to add and do a good job masking the shortcomings of processed food. And if you make special-occasion foods cheap and easy enough to eat every day, we will eat them every day. The time and work involved in cooking, as well as the delay in gratification built into the process, served as an important check on our appetite. Now that check is gone, and we’re struggling to deal with the consequences.--Michael Pollan

[The French Chef] all felt more like life than TV, though Julia [Child’s] voice was like nothing I ever heard before or would hear again until Monty Python came to America: vaguely European, breathy and singsongy, and weirdly suggestive of a man doing a falsetto impression of a woman. The BBC supposedly took “The French Chef” off the air because viewers wrote in complaining that Julia Child seemed either drunk or demented. ... Today the average American spends a mere 27 minutes a day on food preparation (another four minutes cleaning up); that’s less than half the time that we spent cooking and cleaning up when Julia arrived on our television screens. It’s also less than half the time it takes to watch a single episode of “Top Chef” or “Chopped” or “The Next Food Network Star.” What this suggests is that a great many Americans are spending considerably more time watching images of cooking on television than they are cooking themselves — an increasingly archaic activity they will tell you they no longer have the time for. ... Second-wave feminists were often ambivalent on the gender politics of cooking. Simone de Beauvoir wrote in “The Second Sex” that though cooking could be oppressive, it could also be a form of “revelation and creation; and a woman can find special satisfaction in a successful cake or a flaky pastry, for not everyone can do it: one must have the gift.” This can be read either as a special Frenchie exemption for the culinary arts (féminisme, c’est bon, but we must not jeopardize those flaky pastries!) or as a bit of wisdom that some American feminists thoughtlessly trampled in their rush to get women out of the kitchen. ... The glamour of food has made it something of a class leveler in America, a fact that many of these shows implicitly celebrate. Television likes nothing better than to serve up elitism to the masses, paradoxical as that might sound. How wonderful is it that something like arugula can at the same time be a mark of sophistication and be found in almost every salad bar in America? Everybody wins! ... Freed from the need to spend our days gathering large quantities of raw food and then chewing (and chewing) it, humans could now devote their time, and their metabolic resources, to other purposes, like creating a culture.--Michael Pollan

Myrna Ulfik shares her perspective of US healthcare

as a cancer patient. Read the whole thing if you can; here's some excerpts:

I have been battling non-Hodgkin’s lymphoma, an incurable blood cancer, for the past nine years. Last year, I was also diagnosed with uterine cancer.

I didn’t run to Canada for treatment. Medicare took care of my needs right here in New York City. To endure, I just need the freedom to choose my insurance, my doctors, and get the diagnostic scans and care I need. And one more thing: I need hope that a treatment will be developed that can control my diseases the way insulin controls diabetes.

Every cancer patient needs these things, especially hope. But the government’s plan to reform the health-care system in this country threatens all of this—particularly the development of new treatments.

...

I am still here because my care was managed by doctors—not a government agency. My doctors do what the bureaucracy can’t: They see me as a human being.

Patient-as-person will be a lost concept under the new health-care plan, where treatments will be based not upon individual patient needs, but upon what’s best for everyone. So cancer drugs for seniors might take second place to jungle gyms and farmers’ markets—so-called preventive care—which are covered under both the House and Senate versions of the health bill.

...

Tom Daschle, Mr. Obama’s original pick to head Health and Human Services, argues in his book “Critical: What We Can Do About the Health-Care Crisis,” that we should accept “hopeless diagnoses” and “forgo experimental treatments.” Mr. Daschle blames the “use and overuse of new technologies and treatments” for runaway health-care costs. He suggests a Federal Health Board modeled after the British “NICE” board to make decisions on health-care rationing.

But the British system is infamous for denying state-of-the-art drugs to cancer patients. Thus cancer-survival rates in Britain are far below those in America, just as they are in Canada.

Canadian cancer patients told to wait months for treatment and diagnostic scans frequently go south and pay out-of-pocket for care in the United States. A number of Quebeckers even sued their government for violating their “right to life and security” under the Quebec Charter of Rights and Freedoms. Canada’s Supreme Court has acknowledged the pervasive rationing that occurs. In the 2005 case Chaoulli v. Quebec (Attorney General) , the majority opinion stated: “The evidence in this case shows that delays in the public health care system are widespread, and that, in some serious cases, patients die as a result of waiting lists for public health care.”

Despite such evidence, the Obama plan is likely to target various treatments—including radiology scans—in order to cut costs. I survived this long because my radiologist examines each of my scans with me in detail.

One of those scans also saved my life by picking up unsuspected uterine cancer. The congressional majority seems blissfully unaware that all cancer patients need those scans to monitor their diseases.

...

Cancer patients need nothing more than such innovation. Yes, developing more effective, less toxic treatments is expensive. The prices of new cancer therapies reflect the billion-dollar cost of developing each new drug. But such treatments can be life-saving, as they have been for me.

Despite its warts, our system works. Carelessly tinkering with it will have a world-wide penalty—the stifling of new drug development. What company would spend a billion dollars to develop a drug that will not be reimbursed by the new health plan? This would be a direct, devastating blow to the most vulnerable Americans.

In spite of the president’s assurances, there is every sign that this plan will be financed by deep cuts to Medicare, which, like the public option, will limit payments for specialists, radiology scans, and cutting-edge cancer drugs. These are prime targets because they are more expensive than other services. But are we really expected to forgo new medical technology and return to the cancer care of the 1970s?

When members of Congress are asked if they will opt for the public plan, they say no. That’s for the rest of us.

The number of Americans who have cancer exceeds 10 million. It’s time for cancer patients and their families to remind those on Capitol Hill that health-care reform is a matter of life and death for us.

Another high news profile tax-and-spend advocate

with tax problems.

Heroes help bring perspective, like a better prescribed lens

Heroes like Jared Monti.

Perhaps Barney Frank should chair a different committee

seeing as how his track record on banking could not be much worse (via Russell Roberts).

Eric Falkenstein makes a great case on high frequency trading

here, making similar points that I did last week. But he also articulates something that I only mentioned in subsequent comments on other sites, namely that the 'front running' of 'flash orders' pales in moral comparison to the shenanigans of the 'good ol' days':

An algorithm chasing micropennies does not instigate trends the way portfolio insurance did in the 1987 crash, because in that case long-only funds were looking at their total long position, selling into declines (emulating a put option). The current algorithms generally look at relative value trades between sectors or issues, momentary order imbalances, a very different beast. Trade imbalances have always and will continue to move prices, but that isn't the computers fault. If there's continually 10x as many sell orders as buy orders, the result is going to be lower prices no matter what market is created. When buys and sells are coming in with equal size, price stability will be restored. To suggest the computers could exaggerate a movement is hysterical fear mongering in this context, because while anything is possible, it's a baseless hypothetical. Maybe we should regulate financial textbook writers as they popularize models that create things like CDO's that were so prominent in our latest financial crisis? Perhaps he is diverting our attention from his crime of the century?

2008 Investment bank standings

+$1 mil		Tot				($ mil)
bonuses		Empl		Pct		Net Inc*	Inc/Empl	Bank
953		29,400		3.24%		$ 2,322	$ 78,980	Goldman Sachs
44		27,500		0.16%		$ 1,811	$ 65,855	State Street
74		41,800		0.18%		$ 1,419	$ 33,947	Bank of New York Mellon
428		62,215		0.69%		$ 1,707	$ 27,437	Morgan Stanley
1,144		220,255		0.52%		$ 5,605	$ 25,448	JPMorgan Chase
172		223,908		0.08%		$ 4,008	$ 17,900	Bank of America
62		272,800		0.02%		$ 2,655	$ 9,732	Wells Fargo
738		279,000		0.26%		$(27,684)	$ (99,226)	Citigroup
696		58,500		1.19%		$(27,612)	$(472,000)	Merrill Lynch

Bonus information procured here. Employee and net income via Bloomberg.

UPDATE: Some good summary and details by bank here.

UPDATE: John Carney makes a great point about Merrill here.

Conflict resolution on meeting schedules

by Paul Graham:

There are two types of schedule, which I'll call the manager's schedule and the maker's schedule. The manager's schedule is for bosses. It's embodied in the traditional appointment book, with each day cut into one hour intervals. You can block off several hours for a single task if you need to, but by default you change what you're doing every hour.

When you use time that way, it's merely a practical problem to meet with someone. Find an open slot in your schedule, book them, and you're done.

Most powerful people are on the manager's schedule. It's the schedule of command. But there's another way of using time that's common among people who make things, like programmers and writers. They generally prefer to use time in units of half a day at least. You can't write or program well in units of an hour. That's barely enough time to get started.
...
Till recently we weren't clear in our own minds about the source of the problem. We just took it for granted that we had to either blow our schedules or offend people. But now that I've realized what's going on, perhaps there's a third option: to write something explaining the two types of schedule. Maybe eventually, if the conflict between the manager's schedule and the maker's schedule starts to be more widely understood, it will become less of a problem.

Those of us on the maker's schedule are willing to compromise. We know we have to have some number of meetings. All we ask from those on the manager's schedule is that they understand the cost.

Heidi Moore's refreshing take on Goldman Sachs

here. Some excerpts to wet your whistle:

The basic rule of Goldman culture is that the company manages its people exactly the opposite of how every other Wall Street firm does. It's not that Goldman doesn't have its egos—it surely does—but as a matter of management, the firm also has several safeguards in place to keep rampant egos from destroying decision-making. Another thing that makes Goldman different from other firms is not that all Goldman bankers agree but that they are free—and, in fact, encouraged—to disagree.

...

The difference is that Goldman Sachs bankers can disagree only before decisions are made; once all opinions are solicited, consensus is reached, and decisions are made, the decision is one made by the firm, on behalf of everyone, and it's final. Mostly, other Wall Street firms—from partnerships to giant investment banks—are hotbeds of infighting, and you need only talk to a few bankers before you find evidence that they undermine management decisions, subvert prominent colleagues, or openly ignore one another. Even worse, at many firms, bankers or traders will attempt to hide information about bad deals or trades until they can "fix" them and preserve year-end bonuses, as Brian Hunter was alleged to have done at Amaranth. At Goldman, management is like the Godfather: They want the bad news first. And daily. On a Wall Street where bankers are known to be terrible managers, Goldman also starts training its bankers to be managers early. Every Goldman banker has to do at least a year as chief of staff for one group or another. The firm usually shifts successful people among several areas to make sure they get a well-rounded view of the firm's businesses. At one point, Henry Paulson ran not only investment banking but also corporate and real estate banking.

...

The key to the Goldman culture, its acolytes say, seems to be reciprocity. That's unusual in an industry in which power, or "hand," can sometimes be defined by the ability to take advantage of as many people—colleagues and clients—for as long as possible without getting caught. At many other Wall Street firms, bankers often perceive themselves to be at war with their firms; every bonus season brings negotiations about whether profitability comes from the banker's own work or "the platform," meaning the brand name of the bank. "Ripping someone's face off," or screwing them on a trade, is a common phenomenon on Wall Street. But Goldman, these people say, is refreshingly simple: "If you take care of us, we'll take care of you." And then they deliver. It may sound like the mafia, but you can see why many would rather buy into that idea than risk having their work taken advantage of. It's amazing, these Goldmanites say, what a little incentive can do.

So you can see why Goldman alums sometimes don't do very impressively once they leave Goldman. They find themselves in positions where no one questions their premises and it's hard to get good feedback and pushback. (This is why Paulson employed telephone banks of analysts to call Wall Street to solicit opinions.) Outside of the Goldman womb of debate and ideas, bankers and traders lack perspective. You might say that no Goldman is an island.

The blog is peppered with my prevailing theory on Goldman. (Hint: It's about the smartest Goldman employee ever, who is no longer with the firm).

Quotes of the day

The drug that saved my life is banned in Great Britain. ... Companies actually need to hide their new drugs from Europe, because the government doesn't want to pay for them.--Representative Billy Tauzin, on CNBC

There are three big problems with attempting to control health care costs by reducing so-called "obesity." First, it's a fake problem. Second, the solutions for the problem are non-existent, even assuming the problem existed. Third, focusing on making Americans thinner diverts resources from real public health issues.--Paul Campos

Gastric bypass is surgically induced bulimia. People starve for the first few months so of course their blood sugar levels go down. At five and ten year followup the average weight loss from these procedures is about 10% to 15% of body mass (it's actually less than that since lots of people drop out of the studies) which means most of these people end up still "morbidly obese." And they can never eat normally again.Why do you think you never see the actual stats for weight loss from stomach stapling? If they were good they'd be on billboards 50 feet high.--Paul Campos

... we don't know how to lose weight. Some of the things Paul Campos is saying about obesity are controversial, but this isn't. Every single study which has attempted to make overweight people get thin without very risky surgery has failed completely and utterly. Fewer than 1% of patients ever keep the weight off.--Megan McArdle

As capitalism struggles, the parasites who feed off its wealth creation are doing pretty well. The political class is growing. Home prices in Washington D.C. are rebounding three times faster than the national average - and job loss in DC has been less severe than in any other major city.--John Stossel

If Congress can tax plastic surgery, can it tax abortion?--Glenn Reynolds

What's the definition of 'speculation'? A price move that Congress doesn't like.--Eddy Elfenbein

Specialists would emphasize the risk they took in providing liquidity, yet on big gap days like October 19 1987 they did not step in and exacerbated the situation. The risk they took on providing orderly markets was a license to steal for decades, and they now scream 'unfair!' as their order flow evaporates.--Eric Falkenstein

I do not worry about high-frequency trading. Telegraphs and telephones also brought their own, earlier versions of high-frequency trading. As did stock index futures. There are second-best arguments relating to hockey helmets and the like but that is the case with most forms of progress and greater economic speed. You don't have to think that the current profits measure the current social value of high-frequency trading to argue that the overall trend should be allowed. The correct judgment of efficiency occurs at the system-wide level, not at the level of the individual trading strategy. The short-run story is that private profits exceed social returns but in the longer run the trading activity and liquidity brings increasing social returns and better communication of information.--Tyler Cowen

... when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.--Andrew Cuomo

Microsoft needed Yahoo's search business for its longer-term strategic goal of competing with Google on the Internet. That should have allowed Yahoo to force a premium price. Instead, it squandered last year's approach. It is now hard to see a sale of the reshaped Yahoo for a good price, leaving the company to slog it out in the increasingly competitive display-advertising market. Small wonder Yahoo investors lost a boatload of money Wednesday, as shares crashed 12%.--Thorold Barker

The once proud warrior of the internet space laid down its sword, knelt at the feet of Microsoft and gutted itself today. There was no honor in this death, it was one brought by the shame of losing to Google and a lack of faith in one’s ability to compete in the space they created. To be clear, Yahoo didn’t need to do this deal, Microsoft did. Ultimately Yahoo will look back at this moment as the second–and perhaps fatal–mistake in their epic history. Search is the most important business of the 21st century and owning a commanding lead in second place is not insignificant. At one time Yahoo was the number one search engine and portal. However, they didn’t see the value in search and decided to syndicate that piece of their business to a small company called Google. For a couple of years we all experienced Google in Yahoo’s wrapper. Our only indication of who made this wonderful tool was a tiny “Powered by Google” logo on the top right of the page.--Jason Calcanis

Supply and demand is not as easy

as I thought it was.

Bryan Caplan spanks Paul Krugman again

double good.

Game theory and economic corruption

By George Dyson. Read the whole thing (via Robert Cottrell). Here is an excerpt:

We measure our economy in money, not in things. In the age of self-reproducing automata, we can suffer a declining economy, and pandemic unemployment, while still producing as much stuff as people are able to consume. We are facing the first economic downturn to include free cell phones, more automobiles than we have room for (in many locations you can now rent a car for less than it costs to park one) and computers that cost less than a month's health insurance yet run at billions of cycles per second for years.

Why the growing imbalance between the cost of people and the cost of machines? What prices are going up the fastest? Health care — the cost of maintaining human beings. What prices are going down the fastest? The cost of information and machines. What, really, is health-care reform? Human beings are being cared for by a dysfunctional, antiquated system, and we hope that this can be reformed by adopting efficiencies from the domain of machines. Where will this lead? Are we using computers to sequence, store, and more faithfully replicate our own genetic code, or are computers optimizing our genetic code (and health) so that we can do a better job of replicating them?

Replication of information is generally a public good (however strongly pockets of resistance may disagree). When financial instruments become self-replicating, trouble often ensues. The derivatives now haunting us were produced, not from natural factors of production or other goods, but from other financial instruments. There are numerous precedents for this.

As early as the twelfth century it was realized that money, like information but unlike material objects, can be made to exist in more than one place at a single time. An early embodiment of this principle, preceding the Bank of England by more than five hundred years, were Exchequer tallies — notched wooden sticks issued as receipts for money deposited with the Exchequer for the use of the king. "As a financial instrument and evidence it was at once adaptable, light in weight and small in size, easy to understand and practically incapable of fraud," wrote Hilary Jenkinson in 1911. "By the middle of the twelfth century, there was a well-organized and well-understood system of tally cutting at the Exchequer... and the conventions remained unaltered and in continuous use from that time down to the nineteenth century."
...
Until the Restoration tallies did not bear interest, but in 1660, on the accession of Charles II, interest-bearing tallies were introduced. They were accompanied by written orders of loan which, being made assignable by endorsement, became the first negotiable interest-bearing securities in the English-speaking world. Under pressure of spiraling government expenditures the order of loan was soon joined by an instrument called an order of the Exchequer, drawn not against actual holdings but against future revenue and sold at a discount to the private goldsmith bankers whose hard currency was needed to prop things up. In January 1672, unable to meet its obligations, Charles II declared a stop on the Exchequer. At the expense of the private bankers, this first experiment with derivative financial instruments came to an end.
...
Financial systems exhibit the Gödelian incompleteness characteristic of all sufficiently powerful formal systems: within the given system it is possible to construct statements (or financial instruments) whose value appears to be sound, but cannot be proved within the system itself. No financial system can ever be completely secure and closed. There is no limit to the level of concepts (including fraudulent ones) that an economy is able to comprehend. The system depends on trust.
...
"A Banker," explained Sir William Petty, co-founder of the Royal Society and author of Political Arithmetick, in 1682, "is honest only upon the Penalty of losing a beneficial Trade, founded upon a good Opinion of the World, which is called Credit." Credit, by definition, cannot easily be restored; its nature is to shift somewhere else. We should be less concerned with loss of money and more concerned with loss of trust. If we have to start over with more trust and less money, is this really so bad? "Is not a Country the Poorer for having less Money?" asked William Petty. "Not always," he answered, "For as the most thriving Men keep little or no Money by them, but turn and wind it into various Commodities to their great Profit, so may the whole Nation also." 15

Charles II had the right idea. He trusted (and endowed) the small group of oddballs who were forming the Royal Society, and put a stop on the Exchequer. If he had rescued the bankers, and ignored William Petty's band of Natural Philosophers, where would we be now?

Again, regulation does not work as promised

Joseph Cotchett, on the failure of the SEC to oversee Bernie Madoff:

Cotchett, whose firm, Cotchett, Pitre & McCarthy, specializes in civil fraud actions, would not reveal much of the discussion he and his law partner, Nancy Fineman, had with Madoff in relation to the suits, but he added tantalizingly that Madoff "didn't object to a single question" the attorneys asked.

"He opened up and told us everything about how the scam went down," Cotchett said.

Based on the extensive interview, Cotchett said, "In the new complaint we file, there will be a number of new people the SEC (Securities and Exchange Commission) has never looked at." Cotchett said that after talking with Madoff, he was shocked at what he perceived to be the failures of the SEC.

And a quote from television captured by Justin Fox:

I was dumbfounded at some of the instances where he told me and Nancy, in front of his lawyer, that he visited with SEC and there were times when he thought, “They got me.”

Quote of the day

Truth is, we need more speculators, not less. They’re the people who can help prices find the right level, because there is no “right” level other than the one the market gives us. And that’s why, in turn, excessive speculation is nothing more—or less—than a convenient fiction for when prices don’t move the way politicians would like.--WSJ Editorial Board

Budget change I can believe in

Jonathan Weisman reporting:

Three months ago, President Barack Obama ordered his cabinet secretaries to find $100 million in budget cuts for the current fiscal year to emphasize the point that he, too, was serious about belt-tightening. They responded with $102 million. That is 0.006% of the estimated federal deficit.

The list of 77 spending cuts, which the White House is calling "the $100 million savings challenge," reflects the vastness of government -- and its vast inefficiency. Hundreds of millions of dollars in savings were found simply by casting around for areas to trim.

Still, the reductions barely scratch the surface. "Some of these cuts are so small they would be a rounding error of a rounding error in the federal budget," said Brian Riedl, a federal budget expert at the conservative Heritage Foundation. They also show how "unbelievably outdated" the government is, he said.

"I mean, emailing around the daily press clips instead of printing them out and distributing them? That should not have been necessitated by a presidential order."

...

If the administration produces $100 million in savings every 98 days for the rest of Mr. Obama's term, the savings will total $1.5 billion, or three days of interest on the federal debt, said Don Stewart, spokesman for Senate Minority Leader Mitch McConnell.

"These savings tends to be in thousands, tens of thousands and millions," said Rep. Paul Ryan of Wisconsin, the ranking Republican on theHouse Budget Committee. "Our fiscal challenges are in the thousands of billions."

How 4th quarter 2009 US GDP has been trading

DISCLOSURE: I am long this contract.

Graph of the day

That is a HUGE perception gap.

(Via Robin Hanson).

Quotes of the day

Women are gradually becoming more attractive in an evolutionary ‘beauty race’, according to scientific research. Beautiful women have more children than their plainer counterparts, and a higher proportion of those children are girls, a study claims. These daughters, once adult, also tend to be attractive and so the pattern continues.--Lucy Ballinger

For the first time in 30 years, officials in the [China's] economic capital have urged eligible parents to plan for a second child. The move was prompted by the growing demographic imbalance in the city and fears that the younger generation will not be able to support the aging population. The one-child system, where all pregnancies are monitored and sometimes terminated by order, was enforced to control a population that is the largest in the world at more than 1.3 billion. --Jane Macartney

For all the talk this year about the Chinese refusing to buy U.S. bonds, the real story is about the People’s Republic of China’s failure to find buyers for the equivalent of $1.7 billion of its debt because too many investors showed no interest at auctions that would be considered disastrous if their outcomes were repeated on Wall Street.--Lilian Karunungan and Shanthy Nambiar

For the 85 percent of Americans who already have health insurance, the Obama health plan is bad news. It means higher taxes, less health care and no protection if they lose their current insurance because of unemployment or early retirement. --Martin Feldstein

Once we've got a comprehensive national health care plan, what are the government's incentives? I think they're bad, for the same reason the TSA is bad. I'm afraid that instead of Security Theater, we'll get Health Care Theater, where the government goes to elaborate lengths to convince us that we're getting the best possible health care, without actually providing it. ... Now, maybe government institutions could be made to produce innovations; I certainly think it's worth trying Dean Baker's suggestion that we should let the government try to set up an alternate scheme for drug discovery. Prizes also seem promising. But I want to see them work first, not after we've permanently broken the system. The one industry where the government is the sole buyer, defense, does not have an encouraging record of cost-effective, innovative procurement. ... Living a fit, active life is correlated with being healthier. But then, as an economist recently pointed out to me, so is being religious, being married, and living in a small town; how come we don't have any programs to promote these "healthy lifestyles"? --Megan McArdle

They told me if I didn’t vote for Barack Obama, we’d get four more years of K Street lobbyists running in and out of the Oval Office — and they were right!--Stephen Green

We believe that there are important differences among the college majors in world views and overall philosophies of life....," they write. "[O]ur results suggest that postmodernism, rather than science, is the bête noir -- the strongest antagonist -- of religiosity.--Miles S. Kimball, Colter M. Mitchell, Arland D. Thornton, Linda C. Young-Demarco

I've always preferred 40-48 hours per week be compressed into 4 days

instead of spread out across 5 days, which is the current practice. Here is another great reason why we should do it.

Google Trends predicting further declines in initial unemployment filings

here (via James Hamilton).

Amity Shlaes must read article on public choice theory

Read the whole thing. Here are a couple of excerpts:

Government reformers view themselves as morally superior, but that is an illusion. They are just like private-sector operators, who do things that are in their own interest, not society's, first. Those things include taking advantage of an economic crisis to aggregate power for themselves and their offices.
...

Five dramatic examples of PC in action in the U.S. spring to mind.

--The federal government exploits insurance company AIG ( AIG - news - people )'s crisis in order to regulate an area in which state law has traditionally held sway.

--The federal government exploits the auto industry crisis to get its nose into what has formerly been private-company territory: corporate management.

--The federal government exploits the mortgage and banking crisis, using it to capture the remaining private part of a sector in which it already has outposts: health care.

--The federal government exploits the Chrysler deal to reduce the credibility of commercially traded bonds--thus elevating the quality of its own bonds--by arbitrarily denying bondholders

--The federal government--wittingly or unwittingly--drives down the price of Citigroup ( C - news - people ) shares so it can pick up equity in a good bank on the cheap. But most PCers choose to look at this as mindless reflex, not considered intention, spurring the government's action.

The tragedy of such incursions is that once started they're hard to stop. But the first defense against them is to identify the government advance for what it is: a power grab.

No, Professor Krugman, this was the best move on your part

yet (via Don Boudreaux):



UPDATE: David Henderson has more.

Quote of the day

With limited resources, carbon cuts shouldn't be our top priority. I hope that President Obama will not be swayed by the loud, well-meaning, but mistaken appeals from climate-change activists, and instead identify the obvious areas that need more urgent attention. It would be grossly immoral to knowingly squander colossal sums of money achieving almost nothing, while comparatively tiny sums could save millions of lives right now.--Bjorn Lomborg

July 24, 2004

Red Sox Independence Day.

High frequency bovine scatology

Charles Duhigg is a good journalist, whom I've quoted a couple times in the past year.

His latest article made quite a splash on trading desks and the journalists who follow us today. He reports:

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

For most of Wall Street’s history, stock trading was fairly straightforward: buyers and sellers gathered on exchange floors and dickered until they struck a deal. Then, in 1998, the Securities and Exchange Commission authorized electronic exchanges to compete with marketplaces like the New York Stock Exchange. The intent was to open markets to anyone with a desktop computer and a fresh idea.

But as new marketplaces have emerged, PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there.

High-frequency traders also benefit from competition among the various exchanges, which pay small fees that are often collected by the biggest and most active traders — typically a quarter of a cent per share to whoever arrives first. Those small payments, spread over millions of shares, help high-speed investors profit simply by trading enormous numbers of shares, even if they buy or sell at a modest loss.

I agree with everything that Duhigg has reported, but the reporting is one-sided. In order for a high frequency trader (HFT) to make money, someone has to take the other side of the trade, and the liquidity Taker pays a higher fee than the exchange pays the liquidity Provider. The exchange keeps the spread. (You may be familiar with this concept if you have a savings account with a bank, and a credit card or mortgage--the bank keeps the spread between the interest rate they pay you and the interest rate you pay them. If you hate that, maybe you should consider a career in banking.)

Ever play Texas Hold 'Em? If you are the Big Blind, you pay most of the ante, and in return you get to see if anyone wants to play with you--they need to give you information first. So it is with the liquidity provider: putting your limit order out there means you are showing a card first (the shares you are willing to buy or sell at a given price level), and you've taken the risk of getting picked off. You get paid for taking risk and providing liquidity, or at least, you should. Otherwise, there is probably a more productive career somewhere else for you.

Certainly, the grocer who takes the risk to provide food for you in your neighborhood should get paid for that service? Or are "experts" suggesting we go back to subsistence farming so we don't get ripped off by Big Food and Big Supply Chains? I thought reducing poverty was a good thing.

While there is an advantage for the players with the best technology, the playing field is more level than ever. Thirty years ago, a retail investor would have to pay a few hundred dollars to Merrill or other broker to execute a few hundred shares. Now we pay less than $20.

Ten years ago, your mutual fund manager would have to use Goldman or a competitor's block desk to move 100,000 shares of Proctor and Gamble. And they would have to trade an eighth wide, i.e. 12.5 cents per share. The financial intermediaries would take that spread, or more, if another customer was willing to trade through your manager's limit to take the other side of the trade.

No one pays those types of commissions any more. Tick sizes have shrunk over 90%, and as have costs to the retail investor.

The fact that Duhigg had to quote a dinosaur, Bill Donaldson, tells you something. I've spoken to the founder of DLJ and SEC chair on one of his lecture circuit gigs, and the guy is from a different age. His research driven business model was fantastic back in the 70s and 80s, but its a woolly mammoth now. His appointments since cashing out have been largely political; those who can't do teach, and those who can't teach must regulate ...

There are a lot of grizzled Wall Street veterans who pine for the days of tick sizes an eighth wide, and funneling trades to a single market maker on a trading floor. That's because a monopoly is great if you are on the right side of it.

Price discovery is improved with liquidity. There is more liquidity because of high frequency trading.

Right now, GE is quoting $11.97 x $11.98, half a million shares a side. I guess Donaldson and Duhigg are pining for the days when it would be quoting $11.875 x $12.000, and we retail investors would be paying Merrill $300 to sell 1,000 shares, in addition to giving up $95 extra in the day of eighths, in that we would be selling at $11.875 rather than $11.97.

As usual, the good ol' days aren't as good as they seem, once you realize you are giving up your clean running water for the outhouse.

NOTE: The flash orders that Duhigg refers to are a new feature. I'll have more to report on in the coming weeks as I find out more about them.

UPDATE: Eric Falkenstein weighs in a week later than this post, but, oh my, is it worth the wait!

Kara Swisher with the evolution of Yahoo homepages

here. The 1994 version looks like this:

Quotes of the day

[John] Mack’s decision to focus less on prop trading will no doubt prevent the firm from becoming the target of all the populist outrage Goldman has rightfully earned. With some regulators starting to talk about a windfall profits tax on so-called too-big-to-fail institutions, Goldman might come to regret its heavy reliance on trading profits. Still, short-term investors may not have the patience for Mack to deliver. That’s their loss. For investors with a longer-term outlook, Mack’s more sensible approach to risk taking and trading should prove to be a better business model.--Matthew Goldstein

Our six-year-old Little Leaguers have less institutional protection -- binding rules to keep them from getting hurt or burning out -- than the Yankees.--Charles Whelan

The latest example of why I respect Popper more than Hegel

Matt Yglesias.

Greg Mankiw reports that it wasn't all Larry Summers' fault

"Someone more knowledgeable" says:

1) The instrument in question was highly liquid and could be sold fully within a few days; essentially all money was lost in 2008 two years after Larry Summers left.

2) Harvard has a system where the treasurer makes these decisions with approval of the corporation and involvement of a debt management committee on which president does not serve.

3) Given the plan to borrow large amounts of debt in the future, doing something to lock in low rates made sense. Iif Harvard was borrowing big, there would be offsetting saving now. The big error was the failure to adjust hedge when Allston was scaled back and to take account of the risks associated with the change in the university's credit rating.

Public schools underperform

It's true today; it was true 25 years ago (via Don Boudreaux):

Joe Weisenthal notes the double standard of the expert/journalist complex

on comparing US to China policy reactions:

Pundits fall over themselves to heap embarrassing adoration on every move China makes.

-- China's stimulus is working magnificently, we're told over and over again. Ours is a big waste of money.

-- China's smart about locking up hard assets for the long term. We're dumb for trying to guess the future of energy.

-- China is going to kick our collective asses at building electric cars. When we try do that, we're "picking winners and losers."

-- Their centrally managed banking system is held up as an example of prudence and risk-aversion. Government involvement here, though, is doomed to "politicize" lending.

And on and on. We're not saying China isn't or is making smart moves right now. That's not the point. But if you believe that central planning is doomed to make dumb decisions, then there's no reason to think China's any better at it, just because their actions on energy (or whatever else) happen to be the flavor of the month.

Is Nassim Taleb the new Donald Trump?

That is, a person who is not worth as much as their book sales suggests? Eric Falkenstein thinks so in his piece "Betting on Black Swans".

Quotes of the day

The pipe makes civilization possible.--Tom McMahon, master plumber

You should eat what you kill, but you should make sure that what you killed stays dead.--CNBC's Joe Kernen, on Goldman Sachs compensation

... I am puzzled that Harvard has landed in the mess it has so loudly, sloppily, and apparently unexpectedly. You would think a university founded almost 375 years ago would take the long view in everything it does. You would think that it would be cautious, circumspect, and conservative, and that, in the words of that arch traditionalist, Rudyard Kipling, it would have learned to treat those two imposters, triumph and disaster, the same. ... It seems that Harvard and Yale are in a race to determine which of them has the biggest edifice complex.--Epicurean Dealmaker

... what the hell is wrong with the leadership at the ACLU? In theory, for all I know, it unconstitutionally promotes religion. In practice, what important freedoms are being violated? The establishment clause was supposed to prevent a minority from being oppressed by a majority, not to prevent a minority from oppressing itself. I admire a huge amount of the work that the ACLU does on issues like habeas corpus and wiretapping. Why, then, do they so often seem intent on turning the organization into the highbrow edition of Stuff White People Like?--Megan McArdle

I set out with a typical writer’s disapproval like the people who stand outside premieres saying, “My book’s better.” But I think that’s being a bad sport. I also had a very honest conversation with Patrick who said: “It’s going to feel like a violation. I’m going to plunder your book.” I said, “I know what’s happening here. I’ve taken my money and made my choice.” We’re getting to this thing I wanted to talk about: the idea of faithfulness. I think it’s misplaced. A movie [adaptation] is taking something as a jumping-off point. And it may end up making a different genre of work. I think that’s OK. It’s a whole different set of artists working in a different form. I wouldn’t be so big-hearted about it if my book didn’t survive. But my book is still out there.--Zoe Heller

What's true of the NFL is also true of Wall Street

You know, I think that when you're young and you come in and have some success, you think you're bulletproof to an extent. But you find out fairly quickly that football is a replacement business and that no matter what it is that you've done, you're as good as your last play. And then to have all of that going on where I couldn't get my job back and this other kid was in there playing, begrudgingly now I can say he was playing awfully well and has gone on to play very well.--Drew Bledsoe

Trading Sotomayor

Jesse Livermore has the update. I am not in this series of contracts, but have a related position.

I was surprised to find President Obama against stimulus

the union jobs type of stimulus, even.

Cartoon of the day

This reminds me of Canada. Via Mark Perry.

Yes, Virginia

sometimes there can be "too much" innovation: The Galapagos Syndrome.

Via Tyler Cowen.

How Tom Watson's collapse on Sunday led to the discovery of an Earth-sized phenomena

on Jupiter (via Tyler Cowen).

Quotes of the day

May [Walter Cronkite] not be shocked to find some departed members of the Religion Right in heaven, and may he enjoy interviewing them there.--Douglas LeBlanc

The reason for these appeals to lasting unions is simple: on every single significant outcome related to short-term well-being and long-term success, children from intact, two-parent families outperform those from single-parent households. Longevity, drug abuse, school performance and dropout rates, teen pregnancy, criminal behavior and incarceration — if you can measure it, a sociologist has; and in all cases, the kids living with both parents drastically outperform the others. Few things hamper a child as much as not having a father at home.--Caitlin Flanagan

CalPERS, the largest public pension fund in the United States, announced on Tuesday that it had lost a staggering 57 billion on its investments in fiscal year 2009 -- representing 23 percent of its total portfolio.--Andrew Leonard

... the job-destroying effects of minimum wages fall particularly hard on low-skilled adults in poor families.--David Neumark

If Medicare had not been passed, might this country have instituted universal health care coverage sometime in the 1970s?--Tyler Cowen

It's more expensive to park a car in Amsterdam ($805) or London ($1,020) for a month than to rent an apartment in Atlanta GA ($753).--Mark Perry

I respectfully disagree with President Obama that "empathy" is an important characteristic in a judge. Had the President said what I think he probably meant -- "patience" or "a willingness to listen and learn" -- I would have agreed. Judge Sotomayor has both in spades. But "empathy" is an empty standard. For example, a judge who always rules in favor of investment banks might have empathy for Wall Streeters; and, during the civil rights era, there were plenty of Southern apologists who described the working-class whites of the South as the truly oppressed in America.--Stephen Carter

If you want your negativity about someone to be heeded, be positive about them as often as possible. Otherwise you’re crying wolf.--Abraham Piper

From the Things I Never Thought I'd Ever Read Department

The Paul Collier School of Economic Development Goes Rambo?

Scott Locklin spanks Nassim Taleb

and good (via Dan Primack).

UPDATE: Eddy manages to swat two butts with a single stroke with his post, The Black Turkey.

Harvard's financial struggles

as reported by Nina Munk:

If Harvard were a serious business facing a liquidity crisis, it would have done something drastic by now: fired senior employees, closed departments, sold off real estate. But Harvard, like most other leading universities, is stubborn and inflexible. “None of these schools has the ability to cut expenses fast enough” is how a hedge-fund manager who counts Harvard among his investors explained the problem.

... Is Harvard desperate now? One clue is this: last December, the university sold $2.5 billion worth of bonds, increasing its total debt to just over $6 billion. Servicing that debt alone will cost Harvard an average of $517 million a year through 2038, according to Standard & Poor’s.

To be clear, even if you’d tried hard, you could not have picked a worse time to sell bonds than December 2008; that was the precise moment when credit markets seized up. But Harvard, it seems, had no choice. Unwilling to sell its assets at fire-sale prices, it needed immediate cash to cover, among other things, what my sources say was approximately a $1 billion unrealized loss from interest-rate swaps. That’s a staggering figure: $1 billion, roughly a third of the university’s entire operating budget for last year.

Smacking (and defending) Greg Mankiw

by commenters at Ryan Avent's place, and Ryan himself.

Whoever left comments .11. and .28. seems like a swell guy.

UPDATE: Ezra Klein is at it, too. Greg's favorite comment (and mine) is from DaMav:

[Ezra's] argument is basically, "But he didn't even address the salient impact of unicorn dust and pixie wings".

I've heard all about the promise of technlogy and computerization saving money in health care not for years but for decades. The problem is that any savings on individual procedures immediately gets subsumed by additional demand. Nobody says, "Wow, fewer C-Sections, let's pocket the savings and lower the cost of care." Instead it gets turned into meeting improved access or broader services.

I'm delighted that Mankiw is taking you on as a student. Maybe you'll learn something.

Quote of the day

It takes a prince -- heir to the thrones of Britain and Canada and Australia, Jamaica, Papua New Guinea and a bunch of other places -- to tell it like it is: You pampered consumerists are ruining the joint. In the old days, we didn't have these kinds of problems. But then Mr. and Mrs. Peasant started remodeling the hovel, adding a rec room and indoor plumbing, replacing the emaciated old nag with a Honda Civic and driving to the mall in it. Next thing you know, instead of just having an extra yard of mead every Boxing Day at the local tavern and adding a couple more pustules to the escutcheon with the local trollop, they begin taking vacations in Florida.--Mark Steyn

The historic tour de force

that is the potato:

... the introduction of the potato explains 22% of the observed post-1700 increase in population growth.

... the introduction of the potato explains 47% of the post-1700 increase in the average urbanization rate. Our estimates suggest that increased agricultural productivity can play a significant part in promoting the rise of urban centers, industry, and economic development.

Earlier potato factoid that changed Europe, noted here.

A scarcity of confidence can be a good thing

Malcolm Gladwell's latest:

Bridge is Wall Street in miniature, and the reason the light bulb went on when Greenberg looked at Cayne, and Cayne looked at Spector, is surely that they assumed that bridge skills could be transferred to the trading floor—that being good at the game version of Wall Street was a reasonable proxy for being good at the real-life version of Wall Street.

It isn’t, however. In bridge, there is such a thing as expertise unencumbered by bias. That’s because, as the psychologist Gideon Keren points out, bridge involves “related items with continuous feedback.” It has rules and boundaries and situations that repeat themselves and clear patterns that develop—and when a player makes a mistake of overconfidence he or she learns of the consequences of that mistake almost immediately. In other words, it’s a game. But running an investment bank is not, in this sense, a game: it is not a closed world with a limited set of possibilities. It is an open world where one day a calamity can happen that no one had dreamed could happen, and where you can make a mistake of overconfidence and not personally feel the consequences for years and years—if at all. Perhaps this is part of why we play games: there is something intoxicating about pure expertise, and the real mastery we can attain around a card table or behind the wheel of a racecar emboldens us when we move into the more complex realms. “I’m good at that. I must be good at this, too,” we tell ourselves, forgetting that in wars and on Wall Street there is no such thing as absolute expertise, that every step taken toward mastery brings with it an increased risk of mastery’s curse. Cayne must have come back from the Spingold bridge tournament fortified in his belief in his own infallibility. And the striking thing about his conversations with Cohan is that nothing that had happened since seemed to have shaken that belief.

If not Ben Bernanke

then who, John Tamny?

Quote of the day

Talking about music is like dancing about architecture.--uncertain attribution

Quote of the day

There is little evidence that high levels of income inequality lead down a slippery slope to the destruction of democracy and rule by the rich. The unequal political voice of the poor can be addressed only through policies that actually work to fight poverty and improve education. Income inequality is a dangerous distraction from the real problems: poverty, lack of economic opportunity, and systemic injustice.--Will Wilkinson

Two outstanding stories about New York City at City Journal

The Reinventive City by Ed Glaeser

How New York Became Safe: The Full Story by George Kelling

The possible successor to Kim Jong Il

plays hoops and went to school in Europe for a bit.

Sonia throws Sandra under the bus

The ever excellent William Jacobson reporting on the Sotomayor hearings:

Sotomayor's construct, that O'Connor could not have meant that there were gender differences in judicial decision-making, was double-talk since O'Connor's words could not possibly be construed in such a way. Sotomayor took a clear rejection of the "new feminism" by O'Connor, used those words to portray O'Connor in just the opposite manner, and then purported to salvage O'Connor's words by insisting that O'Connor could not possibly have meant what she said.

The whole explanation was a dodge. Why didn't, and doesn't, Sotomayor simply explain what Sotomayor meant, rather than twisting O'Connor's words to create a convenient foil? Or as they say in the law, a "red herring."

Nelson Lund has a nice series here.

DISCLOSURE: I am long these:

Quotes of the day

... there is no such thing as coherent, logical, orderly, causally structured human history. Instead, all there is, is a congregation of separate threads, processes, contingencies, actions, choices, ideologies, and freakish accidents that ultimately do not add up to a coherent whole.--Daniel Little

In the fifteenth and sixteenth centuries, Florence, Genoa, and Venice were the financial capitals of the Western world. When they declined, financial leadership shifted to Amsterdam, then to London, and finally to New York, whose supremacy went unchallenged from 1945 until the end of the twentieth century. ... The Founding Fathers wisely decided that the nation’s political capital should be separate from its financial capital (in both senses of the word). Now this splendid segregation has ended. If the outcome of the Chrysler bankruptcy is any indication, Washington is willing to flex its muscle in financial decisions, altering the substance of contracts freely agreed to by private parties. In so doing, the national government has undermined the certainty of the rule of law, which was the American capital market’s strongest asset.--Luigi Zingales

Don't look now, but the Red Sox may have themselves the best lefthander in baseball.--Tony Massaroti

Light blogging

No wireless access here, as far as I can tell, for the next week.

Quote of the day

Science isn’t a show of hands. Politics is.--Don Surber

The historian of science may be tempted to exclaim that when paradigms change, the world itself changes with them. --Thomas Kuhn

This is Obama's Katrina

You heard it here first (via Don Surber).

I don't think this will hurt Obama in 2009. But if employment doesn't improve by 2011, yes, reelection may be difficult.

Trading Palin

Keith Thomson's take here (via Chris Masse).

Jesse Livermore's take here.

Camille Pagila's take here.

Healthcare quotes of the day

Because so many young leftists do not seem to know their own history, they are doomed to repeat it. Literally. They make arguments that were common in socialist circles a century and a half ago--for the popular version, try Edward Bellamy's Looking Backward. Those arguments utterly failed to rescue other nationalized markets.--Megan McArdle

Of course some of the people covered by the [healthcare] mandate would otherwise end up showing up at emergency rooms. Treating them that way would get tacked on to my medical bills, one way or another. With a mandate they are no longer my financial headache. With this new change, who's better off? Me. Who's worse off? The previously uninsured poor person. You might say: "We are covering more people, at a lower price, than we had thought possible." That sounds like a kind of triumph. But if you cut through to the actual analysis, your paternalism has to be a lot stronger than your egalitarianism for you to support this kind of measure.--Tyler Cowen

Look at that real-life example of Congress's inability to run its own cafeteria. List for us all the specific examples of "government failure" that contributed to and caused this inability -- you know, like in an exam question. Then tell us how and why these very examples of "government failure" won't apply to the government's management of national health care to create the exact same screw-ups on a trillion-dollar rather than cafeteria scale. Be specific.--Jim Glass

Both the private health insurance industry and the music industry are operating business models that to me appear to be unsustainable and anachronistic. The music industry developed in a world of vinyl records. Our health insurance industry and Medicare developed in an environment in which most major diseases were untreatable and the most exotic diagnostic tool was the X-ray. Now, we do 50 million CT scans and 25 million MRIs per year. Now, people with cancer or heart disease expect to survive. As weekend athletes, we expect our knees, shoulders, and hips to be reconstructed by the same technologies that keep Tiger and A-Rod playing. I do not think we know for sure what a sustainable music industry will look like ten years from now. Similarly, I do not think we know what a sustainable health insurance industry will look like ten years from now. The one thing I can predict is that because government will be less involved with the music industry, over the next ten years the music industry will evolve more rapidly than health insurance. We claim to want reform, but in fact we are terrified of change.--Arnold Kling

What America is best at is delivering a lot of complicated care in extremis, and "quality of life" treatments. What European countries are best at is delivering a lot of ordinary care for the sorts of things that afflict people from 0-50, which is why most of the Europhile journalists writing about Europe genuinely have very good experiences to report. I'd rather be here to have a hip replacement, but I might rather be in the Netherlands to have a baby.--Megan McArdle

Cartoon of the day

Link here. Holman Jenkins had made the similar point last year, here.

Enhancing the case for "uncorporations"

Larry Ribstein is an extraordinary blogger and law professor. I've been reading him for a few years now, and one of his more radical (and radical is sometimes good) ideas is that "uncorporations"--such as partnerships and hedge funds--are far superior to corporations in performance and accountability.

He extends this principle in the context of the recent Michael Lewis article in Vanity Fair about AIG:

Hedge funds have to “schlep around and raise money all the time” because their investors, unlike corporate shareholders, do not give them permanent capital. While corporate shareholders can sell their shares to other investors at current market prices, sale prices are discounted by the market’s evaluation of current management. Hedge fund investors, by contrast, have rights to get their money back from the company.

In other words, it’s the “capital lock-in” of the corporate structure – which some commentators have credited for the rise of modern capitalism, that is to some extent responsible for its recent fall. For better or worse, corporate cash is stuck for all time, as the AIG ad suggests.

So what should happen now? Should all financial institutions be uncorporations (or owned by the government)? No, but markets have now learned more about the risks of having traditional corporations manage complex financial instruments. And, yes, markets do learn. Consider why, as Lewis observed, hedge funds have to post collateral for trades with their brokers: because they did learn a lesson from Long Term Capital Management.

Of course a new round of SOX-like financial regulation is likely to short-circuit that learning process. But that's another story.

Graph of the day

Link here.

Quotes of the day

Do I belong in an insane asylum? Or should I be on the FOMC (with Hall, Thompson and Svensson?) Damned if I know. This blog is either grossly overrated or grossly underrated, but it ain’t average.--Scott Sumner

People low in Stability, on the other hand, habitually blow minor problems out of proportion. Even when they live in First World countries, they manage to convince themselves that the sky is falling. Their typically neurotic response is to beg for Big Brother to save them from their largely imaginary problems. When government solutions don't work out, they misinterpret it as further proof that life is hopeless - not that their "solutions" were ill-conceived.--Bryan Caplan

Slavery has never had a very good record of producing wealth. Think about it. Slavery was all over the South. Buying into the reparations nonsense, you'd have to conclude that the antebellum South was rich and the slave-starved North was poor. The truth of the matter is just the opposite. In fact, the poorest states and regions of our country were places where slavery flourished: Mississippi, Alabama, and Georgia while the richest states and regions were those where slavery was absent: Pennsylvania, New York and Massachusetts. --Walter Williams

From 2003 to 2008,the aggregate gross domestic product (GDP), in constant, chained 2000 dollars, for the states with the lowest share of workers under union monopoly control increased by a healthy 17.3%. In these 10 states, as of 2003 4.7% or less of private employees were forced to accept a union as their monopolybargaining agent. Meanwhile, the real GDP of the country as a whole grew by just 12.7%. And in the 10 states with the highest private-sector unionization, aggregate output grew by just 9.9%.--Mark Mix

Note to Greg Mankiw: when Larry [Summers] comes back to Harvard, you should invite him to take ec 10. He seems to have no concept of how the multiplier is supposed to work.--Arnold Kling

A question for Paul Krugman and other stimulus proponents: would you rather have a second stimulus, or health care? I know that in an ideal universe you wouldn't have to choose, but assume that the worrywarts are right, and you do. Which should Obama get done?--Megan McArdle

On Sept. 26, 2008, Barack Obama knocked John McCain for singing, “Bomb, bomb, bomb, bomb, bomb Iran.” Now Vice President Joe Biden told Israel, go ahead and bomb, bomb, bomb, bomb, bomb Iran.--Don Surber

Lack of war is a major reason for Sweden's remarkable economic advance. In a matter of 100 years it moved from being one of the poorest parts of Europe with a massive exodus of near-starving people to America to being one of the two richest countries in Europe (the other was Switzerland.) It has produced more world-class industrial giants than any other country of its size. (At 9m, its population is less than that of the state of Michigan.)--Jonathan Power

I've heard it said that "socialism is the religion of the Swedes." This is not quite correct, though it hints at an important truth. I think of "being Swedish" as the religion of the Swedes. And the more cosmopolitan they behave, the more they are partaking in this religion; don't be fooled! This "being Swedish" business is a wonderful religion for Sweden. It is not a good or possible religion for most of the rest of the world. And it is not a religion to which I have been or could be invited.--Tyler Cowen

If you define sexual freedom as being able to do whatever you want with whomever you please, then (except in very rare cases of perfect compatibility with one's partner at every moment) one man's freedom is another woman's compulsion. Women in traditional harem cultures languished in a condition of de facto slavery, where they had no right to determine anything about their own lives, let alone their sexual partners and activities. Their very survival was predicated on pleasing men. They were treated for the most part as animate commodities, like livestock, to be bought, sold and discarded at will.--Laura Miller