I'm buried in a feature, so talk amongst yourselves: what are you making for Memorial Day?  We accidentally killed our smoker (don't ask), so we're running an experiment: sous vide ribs vs. pressure cooker ribs, both finished on the grill.   If I hadn't been told by a doctor to lay off spicy food for a while, we'd also be making these, the best chicken kabobs ever. How about you?

This week, we heard that Obamacare may be a problem for the unbanked, who don't have any way to pay the insurance companies on the exchanges.  Which raises an interesting question:  did Dodd-Frank inadvertently cause problems for Obamacare?

Say wha?  Let me explain.

Most of you probably didn't pay much attention to the Great Interchange Fee Wars of 2010.  For those who slept through this spirited exchange between the five of us who actually care, a brief recap:  retailers have to pay big processing networks, like Visa and Mastercard, fees for the privilege of accepting their credit and debit cards.  Retailers would naturally like these fees to be lower; Visa and Mastercard politely insisted that they stay high.  

So when the government got going on financial reform, the retailers descended on Washington to crusade for lower interchange fees--not, they insisted, because they were hoping to get rich off the plunder, but because they were so terribly moved by the plight of poor cash users who may pay as much as $23 more a year for their products.  Visa and Mastercard put on their armor and plunged into the melee, but Sir Dick Durbin, Senator from Illinois, friend to the poor (and to Walmart, Target, and Home Depot) carried the day.  The Durbin Amendment capped interchange fees on debit cards, and if you're wondering why your bank stopped offering a debit card with rewards, that's why.

Don't get me wrong--I love ebooks.  These days, I rarely read paper unless I have to.  But while ebooks are certainly more convenient, until recently, they haven't exactly been revolutionary.  It was a book on a screen.  You pressed a button to turn pages.  It was great for the consumer, but it was still basically the same old book.  

That's starting to change.  The last few years have seen the rise of the Kindle Single, which has actually started to change the economics of the book market.  Or rather, it's reviving old formats which died out when books started needing massive marketing budgets:  the pamphlet, and the novella.  (We interrupt your regularly scheduled programming to urge you to buy two terrific ebooks I just read: Jonathan Rauch's Denial, a courageous and beautifully written memoir about the 25 years he spent trying to convince himself he was not gay, and Brink Lindsey's Human Capitalism, about the ways that economic growth exacerbates economic inequality.  Gay or straight, liberal or conservative, you will be very glad that you read both of them.)

The interesting thing about the Kindle Single is that it isn't just changing how long people write, but how people write.  The books can be written much faster--you say as much as you have to say, and then you stop.  Then if they do well, they get turned into a hardcover, which can be revised and extended based on the commentary the ebook received.  It's a strange combination of crowdsourcing and dead tree, and the people I know who have written them love it.

We've also seen the rise of self-publishing phenoms like 50 Shades of Grey.  Most of the stuff that gets published this way is not very good, but word of mouth and the power of the internet lets writers tap into markets that the traditional gatekeepers don't even understand exist.

Today Apple CEO Tim Cook will testify about Apple's corporate tax practices in front of a congressional committee. Here's what you need to know:

• Apple pays a lot of taxes to the U.S. government.

• It also avoids a lot of U.S. taxes by sheltering income in various international subsidiaries.

• This is probably not going to change.

This is the week for arguments I have previously dismissed coming back to bite me. I've already admitted that I dismissed Tea Party complaints about extra IRS scrutiny because really, who would do that? Now along comes another story that is causing me to reassess my priors: it turns out that Indian generic giant Ranbaxy has been selling generic “drugs” that didn't actually work.

Complaining that generic drugs from abroad are nothing but cheap fakes has long been a staple of free-trade opponents, and of course, pharmaceutical manufacturers trying to protect their products from foreign competition. While it's long been clear that there was some truth to the horror stories—don't buy drugs on the Internet, OK?—I've been pretty dismissive of complaints about Indian generics giants like Ranbaxy and Cipla. These guys are huge companies with brands to protect. Moreover, they're inspected by the FDA. Why would they risk it all by adulterating their product?

Well, the fact is they did, and the answer is presumably “to save money.” 

In the late 1980s several generic-drug companies were caught fabricating data and bribing FDA officials to gain approval. In the scandal's wake, the FDA tightened regulations. It required that a company make three large "exhibit" batches to demonstrate that it could dramatically scale up its manufacturing, undergo inspection, and use an independent company to perform bioequivalence tests before an ANDA was approved. The purpose, says David Nelson, who exposed the 1980s scandal as a senior investigator for the House Energy and Commerce Committee, from which he retired in 2009, was to "prevent the systematic submission of false information" to get FDA approval.

What, exactly, consitutes a scandal at the IRS?  

To hear Democrats talk, a scandal would be: Barack Obama sat down with Timothy Geithner, and said "Tim, I'd like you to make sure that those Tea Party groups don't get tax exempt status.  Hassle the hell out of 'em until they cry 'Uncle'."  Timothy Geithner said "Yes sir" and got on the horn with the IRS commissioner to make it so.  

There's no evidence that this happened.  I'll go further and say that there never will be any evidence that this happened, because it didn't happen.   Even if you think Barack Obama and Tim Geithner were stupid and vicious enough to do something like that (I don't), the IRS commissioner at the time was a Bush appointee.  Any such request would have stopped with him. And whatever Republican congressional attack dogs he chose to share it with, of course.

So no, this isn't the type of scandal that will take down a presidency.  But nonetheless, the behavior of the IRS was scandalous.  Scandalous even though I doubt that anyone, at any time, sat down in a meeting and said, "none of those tea-partiers are going to get a tax exemption on our watch, eh?"

There's a growing school of thought among columnists and television pundits which says that the "real" scandal in Washington is not the fact that a government agency investigated people based on their political leanings, but that 501(c)(4)s are multiplying like Typhoid bacteria, allowing anonymous donors to fund unlimited amounts of political speech.   These groups, it is rather tediously explained, should actually have been registered under section 527, which would require them to disclose their donors. A related genre is the column explaining how the real victims here are liberls*, the Obama administration and maybe the American public.

I'm going to stick with "the real scandal is a employees of a government agency using the large powers we have granted them to selectively investigate people based on their political beliefs" and "the real victims are the people who were investigated", though of course, I think this is also terrible for the American people, because we deserve good government.

Nonetheless, it seems that on the second day, we need a fresh angle, and the angle is finding the "real scandal".  So here are my nominees:  

The real scandal is that the IRS doesn't understand statistics  The main defense seems to be that well, there was a big explosion of 501(c)(4) groups after the Supreme Court ruled in Citizens United that the free speech rights granted to citizens under the constitution extended to the groups that those people agreed to form, and that therefore the McCain-Feingold restrictions on corporate spending around election time were unconstitutional.  And because the Tea Party was forming right around that time, those groups tended to be disproportionately conservative.  

I confess, when I woke up this morning, I half expected to find that Obama had confessed to being one of our lizard overlords, or made an offhand mention of the time he'd had the CIA price out a drone attack on Mitt Romney's headquarters.  Between Benghazi, the discovery that Kathleen Sebelius has been leaning on insurers to finance their Obamacare PR, uncovery of a freelance political inquisition by the IRS, and last night's revelation that the Department of Justice had been trolling through the phone records of AP reporters, this has been the most scandalicious week in living memory.  I mean, sure, none of it rises to the level of Watergate.  But while the gravity may pale in comparison, the volume is breathtaking.  So breathtaking that it's tempting to think that the administration is doing this deliberately.

In finance, there's an art known as "Big Bath Accounting" which is used to manage earnings expectations.  Here's how it works:  if you know you're going to have a bad quarter, you look around for anything else that might go wrong in the future, and you decide to "recognize" that bad news now.  Inventory looking a little stale?  Write it down, man!  Customers getting a little slow to pay?  Now would be a good time to write off their accounts as bad debt.  Is there some uncertainty in the projections about depletable assets like oil stores?  For heaven's sake, why not use the low end of the projections rather than the medium or high end? And we should really book some sort of charge to account for the risk that the Yellowstone supervolcano will explode, killing hundreds of thousands and covering the entire western half of the United States in volcanic ash, and in the process severely dampening demand for our premium line of Wyoming-themed memorabilia.

Corporations call this "cleaning up the balance sheet".  Accounting professors call it things I can't print because this is a family blog.  

The theory is that there is only so much bad news people can take in all at once, so you might as well cram all the bad stuff into one action-packed earnings call.  As a bonus, later, when it turns out that the Yellowstone supervolcano is actually just producing extra-spectacular geysers at the moment, causing your premium line of Wyoming-themed memorabilia to soar to new sales records, you can "reverse the charge" and enjoy a nice bump in your earnings per share.  

After weeks of brutal testimony, a heartbreaking and horrifying parade of the inhumanities of which human beings are capable, Dr. Kermit Gosnell of Philadelphia has been found guilty of three out of four counts of first degree murder.  The jury has ruled that he did indeed induce the birth of viable infants, and then snip their spinal cords with scissors to ensure that they would not live.  Like most of you, I would rather I'd never read the grisly accounting of his misdeeds . . . because these terrible things had not happened.

I staunchly oppose the death penalty, so I hope that Gosnell gets life when he is sentenced next week.  But I cannot help but notice that if he did get death, he would be killed under higher standards of sanitation and medical care than he himself observed.  And treated with more dignity and kindness than the viable newborns he butchered and discarded.  How did we come to enforce higher standards on state sponsored murder than on abortion clinics?

Having read the grand jury report, I have to say this to my fellow pro-choicers: we helped create that situation.  Not intentionally or knowingly, and not because being pro-choice means you want to kill babies.  But we focused so hard on access that we failed our equal responsibility to think about safety--and the danger of rogue abortionists who were terminating viable infants. (The murder charges involved infants who were born alive, but Gosnell was also convicted of over 20 illegal late term abortions, which aren't morally much different from killing them in the open air.)  

I was rather astonished to find, when I went to their website today, that NARAL Pro-Choice America thinks that Pennsylvania abortion providers are excessively burdened by health and safety regulations.  The grand jury report on the Gosnell case indicates that the exact opposite is true:

Detroit's population has fallen by 60% since its peak.  15% of its land parcels are vacant, and over 70,000 buildings stand empty.  As the city's finances plunged deep, deep into the red, the state appointed an emergency manager, who just released his preliminary plan for the city.  The plan suggests, though it does not quite say, that things are pretty hopeless.  

Consider what has happened to income taxes over the last decade:

The city's gambling tax now takes in more than its property tax.  I've been to Detroit's casinos, and they're fine, but they're not going to form the basis for a revitalized urban economy.  

Last week, I asked Jim Manzi for his thoughts on the Oregon health care experiment.  Manzi is a very smart guy who has founded a very successful company that helps other companies do experiments.  He is also the author of the terrific Uncontrolled, a book about using randomized controlled trials to improve business, policy, and life in general.  Jim was kind enough to send me his very long, very smart, very wonkish thoughts, which you'll see below.  If you have any interest in Oregon, or just want to be smarter about issues in evaluating social science, you should read this all the way through.

Some Observations on the Oregon Health Experiment

As a vocal proponent of using randomized experiments to inform policy debates, I have followed the discussion surrounding the recent Oregon Experiment with great interest. I think the only thing I’ve previously written for publication on the topic of health care finance was a review of the RAND Health Insurance Experiment. This is the only other randomized experiment of which I am aware that tested the impacts of varying levels of generosity of health care coverage on physical health. The RAND experiment concluded that (1) lower levels of coverage “reduced the use of nearly all health services,” but that (2) this reduction in services “had no adverse effect on participants’ health.” As a casual observer of the topic, that struck me as a fairly important result.

The Oregon Experiment has replicated the first part the first part of the RAND result: Providing free health care coverage increased the use of health care services. However, a debate has arisen between Austin Frakt, Kevin Drum, Avik Roy, Megan and others around the second part: Did this increase in use of health care services lead to measurable improvements in physical health?

Kevin Drum outlines what I take to be the emerging case for the defense of the IRS agents who applied special scrutiny to tax-exemption applications from Tea Party groups:

Roughly speaking, what seems to have happened is that three years ago the IRS was facing an explosion of newly formed 501(c)4 groups claiming tax exempt status, something that’s legal only for groups that are primarily engaged in promoting education or social welfare, not electioneering. So some folks in the Cincinnati office tried to come up with a quick filter to flag groups that deserved extra scrutiny. But what should that flag be? Well, three years ago the explosion happened to be among tea party groups, so they began searching their database “for applications with ‘Tea Party,’ ‘Patriots,’ or ‘9/12’ in the organization’s name as well as other ‘political sounding’ names.” This was dumb, and when senior leaders found out about it, they put a quick stop to it ...

The problem is that the explosion of 501(c)4 groups is a genuine problem: they really have grown like kudzu, lots of them really are used primarily as electioneering vehicles, and the IRS has been either unwilling or unable to regulate them properly. So the fact that some of the folks responsible for processing these applications were looking for a way to flag potentially dubious groups is sort of understandable.

However, if I were accused of this thing, and this was my defense, I’d be looking forward to a guilty verdict from any semicompetent jury.  

Conservative groups have been complaining for a few years that they're being harassed by the IRS, forced to endure an inordinate amount of scrutiny. I've been ignoring those complaints, because it just seemed so unlikely. Sure, that sort of thing used to go on: Kennedy ordered the IRS to investigate both right- and left-wing groups he didn't like, and Richard Nixon was audited three times between 1961 and 1968. But those were the bad old days.  No modern administration, or modern agency would do that.  

Well, I take it back. The IRS admits that, in fact, it did single out conservative groups for scrutiny:

The Internal Revenue Service is apologizing for inappropriately flagging conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status.

Lois Lerner, who heads the IRS unit that oversees tax-exempt groups, said organizations that included the words "tea party" or "patriot" in their applications for tax-exempt status were singled out for additional reviews.

The past few months have been hard on Obamacare, and its supporters.  Max Baucus, one of the primary authors of the plan, suggested that it was going to be a trainwreck unless the administration got its act together on implementation.  Cost-saving improvements like Electronic Health Records turn out not to save costs. Insurers are wary about entering the exchanges, making it likely, says Reuters, that "some markets will have little or no competition next year."  A major study of a Medicaid expansion which was supposed to bolster the case for Obamacare by showing how much it improved health ended up showing no such thing.

Josh Barro, among others, has suggested that this is partly the fault of Republicans, for not being real partners in the health care debate.  Josh writes:  

Liberals are tired of being lectured by conservatives about what’s wrong with their approach to health policy because conservatives haven’t been a productive partner in seeking a fix. And they’re right to note that conservatives’ preferred alternative to Medicaid expansion (leaving tens of millions of people uninsured) would be worse for quality of life.

But the lesson of the Oregon Health Study is nonetheless that there’s cost-effectiveness information out there that Medicaid and other health insurers aren’t exploiting. And even though conservatives have generally done a terrible job of explaining why, conservative ideas about increasing consumer direction in health care could help to exploit that information and make health care more cost-effective -- without repealing Obamacare or stopping the Medicaid expansion.

Senator Elizabeth Warren (D-MA) has just introduced a new bill, the Bank on Students Loan Fairness Act, to offer student loans at the same rates that the Federal Reserve charges big banks through its discount window lending program.  At the moment, that rate is about 0.75%.  The rates on federally guaranteed student loans, meanwhile, is set to double to 6.8% this summer.

"Some may say we can't afford this proposal," said Senator Warren as she introduced the bill.  "I would remind them that the Federal Government currently makes 36 cents in profit for every dollar it lends to students . . . meanwhile, the banks pay interest that is one-ninth of the amount that students will be asked to pay.  That's just wrong.  It doesn't reflect our values."

"Now some explain that the banks get exceptionally low interest rates because the economy is still shaky and banks need access to cheap credit to continue the recovery." She sighed loudly.  "But our students are just as important to the economic recovery as our banks, and the debt they carry poses a serious risk to that recovery."

It's probably true that some say banks need low interest rates to keep the economy growing.  But no one except possibly a lunatic has told Elizabeth Warren that banks are getting 0.75% at the discount window as a thank you for all the hard work they're doing helping the economy.  Discount window loans are cheap for three reasons: the borrowers have assets and income that are easy to seize, the loans are quite short term, and the banks are required to put up collateral.