Too many people seem to have left the labor market for good. Here's how to get some of them back.
Long-term unemployment is literally one of the worst things that can happen to you. When you look at happiness studies, you see that people acclimate to even terrible events: widowhood, divorce, terrible injuries. But they don't acclimate to long-term unemployment. They are still miserable years in. And before you ask: no, this is not an artifact of America's weak safety nets putting people into increasing financial misery. The study I'm referring to was done in Europe.
This misery has been the single most notable characteristic of the last five years. It's the one thing that the government should be the most focused on. But so far, we've attacked it with extremely blunt instruments, mostly macroeconomic demand-boosters. And so far, those blunt instruments have failed to hit their target.
Matt Yglesias points out the result, in the form of this graph from the New York Times. The graph is of the Beveridge curve, which represents the relationship between vacancies and unemployment. Usually, they're pretty consistently inversely related: high unemployment means low vacancies, and vice versa. But during the Great Recession, something changed:
It's no good doing redistribution if you don't have anything to distribute in the first place.
I've been a bit befuddled by some of what my colleage Michael Moynihan terms "love letters" to the departed Hugo Chavez (such a sonorous voice rolling out of the television for hours on end! Pity he was insufficiently authoritarian, though).
Now, I am sad that Hugo Chavez is dead, because it is always sad when a human being dies, and a universe ends. And I felt no particular urgency, after he died, in writing the obligatory piece pointing out that Hugo Chavez was a strongman with profoundly anti-democratic tendencies, who believed in elections only insofar as they suited him, and also, has left Venezuela's economy in a parlous long-term position. But then people started defending--or minimizing to the point of untruth--the clearly indefensible. Moreover, my Facebook feed lit up with people stating, as a fact, that capitalists just hate Hugo Chavez because he gave stuff to the poor.
So it seems worthwhile to point out that in the long run, Hugo Chavez was probably bad for the poor of Venezuela; that he would have already been very bad for the poor of Venezuela if he had not been happily bailed out by the world oil market; and that even beyond his mismanagement of the economy, Hugo Chavez should not command respect. His means were despicable, even if you agree with the ends.
Last item first. William Dobson writes the brief for the prosecution:
How can reality compete with bliss?
Years ago, I attended a seminar on evolutionary psychology that inevitably came round to the discussion of drugs. It was a small group, and one of the attendees had obviously lost someone to addiction. Since I, too, have watched people I care for destroy their lives this way, I was somewhat sympathetic to this person, who had a visceral, horrified reaction to the dispassionate tone in which the rest of the group was arguing. We had undammed some fairly fresh anguish, which poured out in an angry and righteous tirade about the terrible things that happen to drug addicts: lost jobs, destroyed marriages, broken friendships, ravaged bodies.
"But that's not necessarily an argument that cocaine is bad," someone pointed out. "It could be an argument that cocaine is so great that it's worth losing your job, your marriage, your friends, and your health."
And of course, in some sense, he was right. Though I should pause to note that I am not really speaking from personal experience here. Opiates make me very badly nauseated, so my only experience with them comes from the Vicodin I took during a dental emergency back in 1996. On the other hand, I am tremendously addictive to stimulants, which is why I have never tried any, except for the caffeine and cigarettes on which I was near-instantly hooked. And while I do drink, my body won't tolerate the level of alchohol consumption required to sustain a problem habit, especially now that I've reached that marvelous age when one can easily skip the buzz and go straight to the hangover after two glasses of wine. I like to think that I have the strength of character to avoid addiction, but the fact is, I've never really put it to the test. And thus cannot speak with any authority on the joys of drug use.
But from talking to friends who developed more-than-recreational habits, and observing the behavior of addicts worldwide, it seems obvious that they do find the drugs even better than jobs, wives, friends, and health. It isn't that they don't want those other things, too, but at the moment of choice, they prefer the drugs.
Why do their claims keep falling apart under scrutiny?
Last Friday, President Obama claimed at a news conference that janitors at the Capitol would be suffering pay cuts as a result of the sequester.
The Washington Post fact-checker column said no, this wasn't really true, so White House staffers rejoindered that even if they weren't taking actual pay cuts, per se, the janitors would be givin gup overtime pay that they really needed. Now, the Washington Post has investigated this claim as well, and found it underwhelming:
First of all, we should note that the White House’s story kept evolving as we reported last week’s column. It’s almost as if the president’s aides had to scramble to come up with reasons why the president could be correct, without actually knowing the facts.
So, when we forwarded to White House aides an AOC memo saying no furloughs were planned, White House aides latched onto a line about overtime reductions. For a couple of hours, we were also told that the janitors were on contract — and contracts were being curtailed. But that line of reasoning turned out to be incorrect. Then, after the statements from the Capitol were issued, there was no longer any response.
No, seriously, depending on age and health, you'll die in an average of 30 years, ± 30 years
I am possibly the world's worst headline writer. It was something of a sore point when I worked for The Economist, which has a well-deserved reputation for dryly witty captions and headlines. I breathed a sigh of relief when it turned out that the internet does not like dryly witty captions and headlines; it likes incredibly literal, boring headlines with names in them.
But my relief only lasted so long, because it turns out that there is an art to writing those sorts of headlines, too, and I am no better at that sort of alchemy than I was at coming up with punchy headlines of the "Headless Body Found in Topless Bar" variety. Jeff Bercovici outlines the new rules of headlines, replete with tidbits like: "Specifically, forget the rules that say headlines must be informative, objective or even grammatically correct".
One possible reaction is to emit a deep and weary sigh at the notion that journalism has come to this. But I'm a libertarian. Who am I to tell the public they shouldn't flock to "Here's the Beauty Secret That Allowed Taylor Swift to Write Vengeful Breakup Songs About 17 Different Hot Guys"?
But where does that leave me? I'm not sure that the public is ready to click on headlines that read "There Are Five Different Ways to Think About the Minimum Wage, But This is the Only One You'll Need". So I've decided just to use the same headline for all my pieces. Of course, being a business and economics writer, I don't just want to slap on a headline randomly. That's the sort of thing that English majors might do. Instead, I'm going to do some focus grouping and A/B testing to scientifically determine which headlines work the best. For example, at the top of this post, you should be seeing either: "You and All Your Friends Must Read This Story Right Now, Or You Will Probably Die" or "I Have Broken Into Your House, Killed Your Labrador Retriever, And Am Now Holding Your Spouse Hostage. Click Or Your Better Half Gets It!"
Accountable Care Organizations were supposed to be the saviors of the health care system. But the pioneer ACOs are resisting the "accountability" part.
Last week, I wrote about the Cleveland Clinic, the widely respected medical center that the Obama administration hopes will become a model for health care system delivery under the new health law. Accountable Care Organizations are supposed to simultaneously lower costs and improve outcomes by streamlining and integrating delivery services. It's a step towards the promised land that all health care wonks dream of, where we pay for health rather than treatment.
However, Cleveland, along with other model providers like Mayo and Intermountain, declined to become one of the "Pioneer ACOs" that the Obama administration anointed to lead the way into the new promised land. And now, it seems, many of the institutions that did agree to join the wagon train are saying that they'll pull out if the administration tries to, well, pay them for performance rather than treatment.
One of CMS' highest profile health care delivery reform initiatives is on rocky ground as most of the Pioneer ACOs are threatening to drop out of the demonstration if CMS makes them start meeting quality measures instead of merely requiring that they report the measures, according to a letter obtained by Inside Health Policy.
The newsletter requires a subscription to read, and I don't want to steal someone else's content by summarizing, but my key takeaway is that the pioneers have found the trail a little rockier than they expected; the cost savings aren't as easy as they looked, and the health targets are harder to achieve.
We're all waiting for growth to return. What if it doesn't?
I'm on a reporting trip this week, so blogging will be light for the next couple of days. Here's something to chew on while I'm gone: what if the current doldrums are the new normal? Not just for a few more years, but for a couple of decades?
I know, you've all read Tyler Cowen's Great Stagnation (I mean--you have, haven't you? If not, what are you waiting for?). So this thesis isn't entirely new to you. But two new pieces to add to the mix: Jim Tankersley talks to a bunch of analysts about when we'll return to growth, and Tyler Cowen asks whether we're once again in the early 19th century, growth-wise:
If we turn to the industrial revolution, what do we see? Relatively high productivity from “restructuring,” (machinery replacing labor) but relatively low productivity from innovation or total factor productivity. Robert C. Allen, in his “Engels’ pause: Technical change, capital accumulation, and inequality in the British industrial revolution” (pdf, the final version is in Explorations in Economic History, 2009) estimates TFP from the time at about 0.69% a year, hardly a stunning number (the number runs in the 2%-3% range for the 1920s and 1930s) and actually that early number is close to what we are seeing today for TFP.
From 1780 to 1840, output per worker rose 46% and the real wage index rose by only about 12%, noting that none of these numbers are close to exact. (Contra Ricardo, the share going to land is declining steadily and capital is capturing the gains.) The significant real wage gains come after 1840 and — in my view — even more after 1870. After 1830 TFP is growing at the higher rate of about 1% a year, still not impressive by the standards of the early 20th century however.
Let's remember that it's not all bad
I was perusing the statistics on unemployment among workers over 55. They're pretty depressing:
And yet, you know what? They're not nearly as depressing as you'd suspect. What does every article tell you about over-55's who lose their jobs? They're totally hosed. Probably never work again. Spending their retirement funds on basic living expenses.
Bureaucrats are not Captain Jean-Luc Picard. They cannot just "make it so".
A couple of days ago, I did an interview with economist Bart Wilson on the role of prices in markets. We were riffing off the commentary on Steve Brill's 22,000 word opus on hospital pricing, but some readers complained that we weren't really getting down in the weeds of the health care market.
Well, the dark and weedy recesses of the health care market are Martin Gaynor's specialty, and he's written a great piece for the health care blog on cost control:
. . . there are some countries that use rate setting, such as Australia, France, Israel, and Italy that have lower growth rates than the US, and some such as Canada, Finland, and the UK that have higher growth rates. The US is below the OECD average, whereas Finland is above, as is The Netherlands. While I wouldn’t put much weight on anything we see in cross-country differences (there are way too many differences across countries besides price controls), nonetheless nothing striking emerges from these numbers.
. . . So what do we conclude? My answer is that we don’t know what the impact of rate setting (price controls) would be on health care spending in the US. It’s possible that rate setting could prevent some of the most egregious practices recorded in the Brill article, but that depends on what’s enacted and how it’s enforced. Whether rate setting would substantially slow the rate of growth of health care spending isn’t clear. Further, the question that must be asked is what is the alternative? There’s evidence to suggest that robust price competition, such as we had with managed care during the 1990s, can perform very well in controlling costs. Unfortunately there has been a tremendous amount of consolidation in health care markets since the 1990s, raising serious challenges to competition. Whether the US decides to go with competition or with regulation, we have some serious work to do to make the system we choose work effectively.
Stopping Keystone won't stop the oil from flowing. It won't even really slow it down.
Environmentalists are known for their happy pursuit of (mostly) lost causes, but rarely do their quests seem as entirely pointless as the drive to shut down the Keystone pipeline. If we fail to build Keystone, it's not like the Canadians will give up on oil production and refocus their economy around poutine and mounty movies; they'll just move the oil some other way. For example, by train or truck, which takes more energy than a pipeline. Or they'll build a pipeline through pristine British Columbian rain forest rather than open Nebraska farmland.
Time's Michael Grunwald argues that I'm wrong:
The pipeline isn’t the worst threat to the climate, but it’s a threat. Keystone isn’t the best fight to have over fossil fuels, but it’s the fight we’re having. Now is the time to choose sides. It’s always easy to quibble with the politics of radical protest: Did ACT UP need to be so obnoxious? Didn’t the tax evasion optics of the Boston Tea Party muddle the anti-imperial message? But if we’re in a war to stop global warming — a war TIME declared on a green-bordered cover five years ago — then we need to fight it on the beaches, the landing zones and the carbon-spewing tar sands of Alberta. If we’re serious about reducing atmospheric carbon below 350 parts per million, we need to start leaving some carbon in the ground.
Yes, Keystone would create temporary construction jobs, but so would any other construction project. We’re already less reliant on Middle Eastern oil than we’ve been in decades. And there is zero chance that approving the pipeline would, as Nature suggested, help Obama “bolster his credibility” with industry groups and Republicans; they would celebrate their victory and continue their twilight struggle.
Andrew Mason's resignation letter doesn't mince words
The standard line from people who get fired is that they're resigning purely of their own volition in order to spend more time with their family. The standard line from journalists writing about people who've been fired is "He wanted to spend more time with his family . . . complaining about getting fired."
Not so with Groupon CEO Andrew Mason, however, who posted his non-resignation letter to Groupon employees on Jottit:
(This is for Groupon employees, but I'm posting it publicly since it will leak anyway)
People of Groupon,
The problem isn't the management. It's the model.
Are you surprised that Groupon just fired its CEO? Are you really? Riddle me this: when's the last time you booked a Groupon?
If you're anything like me, it's been a while. A quick search of my inbox reveals that it is choked with Groupon offers, at least one or two a day. Martini tasting! Round-trip Bus Rides to New York! 44% off Jewelry by Kim Kardashian! (So much for their much-vaunted precision targeting of deals). But the last time I clicked on one was weeks ago, and only because of the vivid subject line: "I would check out these deals if I were you". I was concerned that having failed to grab my attention with exclamation points, they were escalating to threats.
But firing the CEO seems rather beside the point. The problem with Groupon isn't its management; it's the business model.
Coupons basically serve two purposes: advertising, and price discrimination. They either make people more willing to try a new service, or they let you sell to very price-conscious consumers while still charging your less frugal customers full price. Businesses were encouraged to view the coupons as advertising--to sell their products or services at very close to cost in order to attract new customers who would then come back once they'd discovered how awesome the firm was. But coupon buyers were pitched on the price discrimination side: for them, Groupon was about a constant flow of super-cheap deals, not a way to discover new businesses where they might become long-term customers.
Things aren't looking good for Argentina--or its current bondholders
Ten years after they defaulted on their bonds, Argentina is still wrangling in the New York courts over who will get paid, and how. It looks like the courts are getting ready to affirm a controversial ruling that could cause Argentina to default once again.
Here's the back story: when Argentina defaulted, they came to an agreement with most of their bondholders in which they exchanged the old, defaulted bonds for newer ones that were worth less. (This is commonly how sovereign defaults work). However, there were some holdouts. (There always are). The holdouts had some grounds for complaint, in that Argentina was dictating deeper haircuts than is common. But Argentina's response was, more or less, "So sue us. We're a sovereign nation."
The holdouts did just that, in US courts. Last year, District Court Judge Thomas Griesa ruled that the holdouts had to get paid--or at least, that Argentina couldn't pay anyone else (i.e., the bondholders who had taken the exchange deal) without also cutting a check to the holdouts. Since both old and new bonds were issued under US law, the payments on the new bonds run through the New York banking system. Griesa said that those bankers had to divide the money equally among all bondholders--holdout and not--if it paid anyone.
The case is now up in the appellate court, where things are not looking good for Argentina. Felix Salmon was in the courtroom:
4QGDP grew just a smidge. But it's nowhere near enough.
Great news: GDP didn't shrink in the fourth quarter! Instead, it grew . . . at a 0.1% annual pace.
Obviously, this is not great news. Of course, it's nice that the economy didn't actually shrink. But given the measurement error inherent in calculating GDP, this is very nearly a distinction without a difference. We aren't going to fix our broken job market, or our government finances, with this kind of anemic growth.
The real question is what happens next quarter: was this a blip, or will we see similarly anorexic numbers for the first quarter of 2013? There are reasons to be cheerful: personal consumption expenditures were up last quarter, and the housing market seems to be recovering just a bit. But there are also reasons to be pretty grim: the tax hikes, the sequester, and a retail sector that seems to be struggling just to stay in place.
Five years after the financial crisis, the economy is still basically treading water. Can we really stand a sixth?
How short-sighted FHA rules enforced housing segregation and inequality
My former colleague, Ta-Nehisi Coates, writes that white flight was, in essence, a government policy:
It is increasingly clear to me that white flight was not a mystical process for which we have no real explanation or understanding. White flight was the policy of our federal, state and local government. That policy held that Americans should enjoy easy access to the cities via the automobile live in suburbs without black people, who by their very nature degraded property and humanity.
I wish I were exaggerating. From Beryl Satter's Family Properties:
In the 1930s, the U.S. appraisal industry opposed the "mixing" of the races, which it believed would cause "the decline of both the human race and of property values." Appraisers ensured segregation through their property rating system. They ranked properties, blocks, and even whole neighborhoods according to a descending scheme of A (green), B (blue), C (yellow), and D (red). A ratings went to properties located in "homogenous" areas--ones that (in one appraiser's words) lacked even "a single foreigner or Negro." Properties located in neighborhoods containing Jewish residents were riskier; they were marked down to a B or C. If a neighborhood had black residents it was marked as D, or red, no matter what their social class or how small a percentage of the population they made up. These neighborhoods' properties were appraised as worthless or likely to decline in value. In short, D areas were "redlined," or marked as locations in which no loans should be made for either purchasing or upgrading properties.
The Murray-Ryan bill won surprisingly strong bipartisan backing in the House, raising hopes of a more normal Capitol Hill atmosphere and maybe actually getting something done in 2014.
Did Obama lock down the independent vote with his move to reform immigration law? Newsweek and The Daily Beast’s Michael Tomasky and David Frum debate the liberal and conservative perspective on the latest immigration reform.