The betting market shut down rather suddenly a few days ago, with a rather cryptic notice about "financial irregularities" and the requirements of Irish law that they cease trading at once.  Naturally, people have been wondering what, exactly, those financial irregularities might consist of.

Rajiv Sethi, a Columbia economics professor, suggests that they may have failed to properly segregate their trading accounts:

What on earth is going on? My best guess is that the margin posted by traders was not held, as it should be, in segregated accounts separate from company funds. When bets are made on this market, both parties must post margin equal to their worst-case loss, so that neither is subject to counterparty risk. In effect, each party is taking a position against the exchange, but these positions are exactly offsetting so the exchange bears no risk. To ensure that all promised payments can be made, these funds must be held in the form of cash, insured deposits, or safe dollar-denominated securities such as Treasury bills. They cannot be invested in risky assets, and cannot be used for the payment of salaries or expenses.

Dear Blogger:

We have a four year old and a two year old. How much and how should we save for their education? There is a lot of talk on your blog and elsewhere about a bubble in higher education and how student debt is crushing younger people. For a service that is going to go through a lot of changes how do you know how much to save for something that is well over a decade off?

On a personal finance level – both me and my wife just past our 40th birthday. We own a house valued around $750K and only have about $150K left to pay off. We have been paying down the house about $50K per year so should be debt free in three more years. For the past two years we have also been putting $25K into a 529 for the kids. So at this point we have about $50K in a 529. Almost all our savings are in the house as we only have about $150K in other investments. When is the kids’ college fund topped up? Are we being foolish to save for the kids educations as opposed to our own retirement?

Once the kids are in kindergarten our income should go up (we have been prioritizing family a lot over work while they are this age) and our expenses should drop. Also, our house will be paid off so we can allocate those savings to other investments.

Kids Future Or Ours?

Dear KFOO:

Josh Barro notes an absolutely true fact: most people don't save enough for retirement.

Therefore, says Josh, we should raise Social Security benefits to make up the shortfall:

Private saving for retirement is woeful. This typical near-retirement household has just $42,000 in retirement accounts and $18,300 in other financial assets. For most Americans, Social Security isn't augmenting private saving; private saving is (just barely) augmenting Social Security.

As we head into the second week of the sequester, the federal government is thinking about tightening its belt.  But of course, many of you have been cutting back for years.  Eating out less, cancelling cable, running the old car a while longer.  Even people who still have their jobs seem to be looking for ways to save rather than spend, the better to weather any future hurricanes.  

So this week's discussion topic concerns tips for thrift.  What have you done to cut back during the Great Recession?  What were the easiest and most painless ways to economize?  What turned out to be a false economy?

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:

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:

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.  

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.

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!"

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.  

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.

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.

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.

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.

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,