April 30, 2007 9:43
Calling a market top in Jamestown commemorations
Going by Barry Ritholtz's theory that magazine covers are a contrary indicator, I predict that Time's current cover on Jamestown means there won't be any more major Jamestown commemorations for, say, a century.
In case you were wondering, this observation is (1) a dodgy excuse to get in my second post of the day, because The Man wants two every weekday, and (b) an opportunity to mention that I don't have a column in the current issue. I'm currently working very hard on my column for the next issue, which explains the lack of posting today.
April 30, 2007 12:52
Is 28% of GDP too much to pay in taxes?
A former soccer teammate of mine had this to say about my posts a couple of weeks back about the constancy of the tax burden over the past half century or so. (The federal tax burden is around 18.5% of GDP, which is about the average for the post-war era, while the combined federal, state and local burden is 28.8%, a couple of percentage points above the average.)
To me 28% of GDP is a big number. On the federal side, doesn't the consistent 18% of GDP taken in taxes demonstrate inefficiency? Haven't many other things such as food and clothing decreased as a percentage of what we spend? Many other things that are getting more expensive such as housing can at least be said to have improved in size and or quality (unless you live in NYC, ha ha.)
The size of our country's tax bill is a tremendous burden. Compare 28% of
your gross income with your other top expenses. For the last several years
our taxes have been our single largest expense. There is nothing on which we
spend more than we do on taxes and it is not even close. ...
All of this is meant to add some meaning to the numbers in your graph. Our
taxes have a huge effect on what we can spend on other big ticket items. We
would be much more powerful consumers, savers and investors with a lower tax
burden. I suspect that this is true throughout the economy.
April 29, 2007 1:15
Australia are Big Daddies (another gratuitous cricket post)
So Australia won the big match Saturday against Sri Lanka, 281 runs to 215.
I mention this mainly because it provides another opportunity to share with you the the florid and often incomprehensible brilliance that is cricket journalism. Here's the especially florid and brilliant Rahul Bhattacharya summing things up at Cricinfo.com:
The final day of the ninth World Cup was an absurd and boisterous one which began with rain, ended in darkness, and in between contained an innings of lashing power and glory the likes of which observers felt a World Cup final had not seen before. This is already a tall claim to make. Clive Lloyd hit a superb captain's hundred in 1975. Viv Richards held stage four years later. Aravinda de Silva's century in 1996 was a masterpiece in pacing a chase. By the end of his innings in 2003, the modern master Ricky Ponting was hitting sixes with one hand. These are some of the finest batsmen to have played the game. Gilchrist's innings was that good.
It made loudest the statement the Australians have made all World Cup: We are the Big Daddies. Then one more time: We are the Big Daddies.The Sri Lankan bowlers may have not risen to the occasion but after watching a tournament full of Australia taking apart teams it is possible to empathise with their plight. The thing about Australia is that you don't know what hits you and nothing can prepare you for it. They leave you dazed and senseless and feeling in every way unworthy. It is difficult to stand straight let alone bowl and field like champs with stars buzzing around the head. So demoralising was Gilchrist's assault, for example, that after being slapped for yet another boundary, the unflappable Chaminda Vaas bowled five wides and followed it with a boundary down the legside which would have been more wides were it not for a faint touch.
April 27, 2007 2:28
The fat head of music sales is getting fatter
I'm generally sympathetic to Chris Anderson's argument that the Internet should shift the focus of the media business away from the fat head of blockbusters and toward the long tail of niche content. But it sure ain't happening yet in music sales. From today's W$J:
Thanks largely to aggressive pricing and advertising, big-box chains are now responsible in the U.S. for at least 65% of music sales (including online and physical recordings), according to estimates by distribution executives, up from 20% a decade ago. Where a store that depends on CDs for the bulk of its sales needs a profit margin of around 30%, big chains get by making just 14% on music, say label executives who handle distribution. One of these executives describes the shift as "a tidal wave." Despite the growth in online digital music sales, physical CDs still are the core of the recording industry, accounting for about 85% of music sales.
April 27, 2007 11:27
Big game tomorrow: Australia vs. Sri Lanka
As this blog's focus increasingly shifts to matters Australian, I figured I should check out the homepage of The Australian to see what's up down there. There I learned that the cricket World Cup final is tomorrow (well, the people at The Australian think it's "tonight"; they would, wouldn't they). I'd totally stopped paying attention to the World Cup after India got knocked out (and the murder of Pakistan's coach had soured me somewhat before then). I had no idea the end was upon us.
Anyway, it's Australia battling it out with Sri Lanka in Barbados tomorrow for the Championship of the World. Ricky Ponting's murderers' row of batsmen against the Greatest Bowler on the Planet, Muttiah Muralitharan. "Annihilate Murali," reads the charming headline in The Australian.
Here's how Cricinfo blogger Mukul Kesevan sees it all ending:
Ponting wins the toss and puts Sri Lanka in on a fast Barbadian track. Big mistake. Jayasuriya and Sanagakkara failed at the right time, the match before. So they're due big scores and they get them. Then Tharanga and Mahela fool everyone by beating the odds and doing it all over again. Lightning strikes twice, Atlantis surfaces and McGrath goes for 60 in eight overs. 289 for 2 this time. By the time the innings ends, it's past my bedtime and I sleep through Murali and Malinga's Punch and Judy show. When I wake up in the morning, they've won.
(No, I didn't understand any of it but the last sentence, either.)
Update: Australia win. Or if you prefer, Australia wins.
April 27, 2007 7:00
How Time called the end of the Republican revolution
There are a few commenters over at Swampland who, at the slightest provocation, bring up Time's Ann Coulter cover story of two years ago as evidence of the perfidy of this here media enterprise. I tend to think that this is nonsense, and that John Cloud did a pretty great job of portraying the staged nature of the rival media enterprise that is Coulter Inc. But who cares what I think about that, eh?
Financial blogger Barry Ritholtz had a far more interesting take on the story when it was published two years ago:
We have looked at the magazine cover indicator in the past as a contrary indicator. Its been a solid tell on politics, technology, currency, even specific stocks (i.e, Apple). And, this is not the first instance of Time Magazine's displaying exemplary timing. Recall the Jeff Bezos (Amazon.com's founder and CEO) [cover story] in December 1999 pretty much top ticked both that stock and the entire dotcom bubble.
Since Reagan was elected, the right side of the political ledger has been in ascendence. But for Bill Clinton's brief reign (initially elected in a 3 way race that included businessman Ross Perot), that's over 25 years. It would be both fascinating and ironic if Time Magazine, demonstrating once again their wonderful sense of timing, and [sic] top ticked another trend.I'd find it terribly amusing if Time magazine managed to nail the exact moment -- the post-Schiavo/Iraq War/Social Security reform instant -- when the zeitgeist swung away from the G.O.P.
On Thursday night, Ritholtz declared victory:
So I guess congrats are in order for the Time magazine editors, whose sense of timing was truly and astonishingly prescient -- in a contrary indicator sort of way . . .
I wasn't at Time two years ago, but my take is that it's the raison d'etre of a mass market publication to focus on important cultural phenomena just as they peak. If that makes its covers a contrary indicator, so be it. (The magazine's business/economics column is an entirely different matter, of course.)
April 26, 2007 5:43
The Health of Nations (and Don't Forget Australia)
I just got around to reading Ezra Klein's Health of Nations article in The American Prospect. It's a wonderfully clear description of how the health care systems of Canada, France, Germany and our own Veterans' Administration work (Ezra's verdict: better than the private U.S. system).
It's fine work, marred only by Ezra's egregious failure to mention the great nation of Australia (that man's anti-Antipodean bias will be his downfall, I say). Happily, though, several Aussies commented on my Wednesday post about health care, one of them (Marcus by name) offering this description of how things work down there:
Everyone pays a levy that guarantees a basic level of service. The basic costs of visits to doctors (Physicians and some specialists), accident and emergency care, and elective surgency etc are all covered as part of that package based on a set fee structure. Pharmaceuticals are bought in bulk through the government and the price to consumers is reduced and subsidised as a result.
The problems with the system are that there are long waiting lists for elective surgery, and at times there is limited choice (some doctors charge over and above the fee structure and therefore there is a "gap"). For those who are concerned enough about that, private health insurance is widely available (about 30% of Australians have it) and is also supported by tax incentives, etc etc.It is not a perfect system, but i'd take it over yours any day...
Update: On the bright side, things are much worse in China.
April 26, 2007 11:37
The Myth of the Rational Whatever
George Mason University economist and blogger Bryan Caplan has a new book out called The Myth of the Rational Voter. I haven't actually seen a copy yet, but I have read about it.
This news is making myself kick myself even harder than I usually do, because I have a long-delayed book due out a year from now called The Myth of the Rational Market (Amazon still lists it by its old name, The Myth of the Rational Investor). If I'd just finished it earlier it could have been marketed with Bryan's as a packaged set. We could have gone on book tour together. We could have shared the cost of bodyguards to fend off our legions of teen-aged fans. What a missed opportunity!
All of which means I'm thrilled to announce that Bryan and I will be collaborating on our next book project, Good Times: Why Absolute Monarchy and the Feudal Economy Weren't So Bad After All.
Update: Professor Caplan appears to be having second thoughts.
April 26, 2007 10:58
Excellent questions for which I have no good answers
A commenter on Brad DeLong's blog has a few questions for me, apropos of the snide opening line of a post I wrote a couple days ago:
Economist Brad DeLong, as part of his long-running campaign to persuade the world that journalists are flawed (and many are; unlike academic economists, who are right about everything and also smell great!) ...
Anyway, here are wood turtle's most excellent queries:
The burning issue is: exactly how does Justin Fox know that academic economists smell great?
Also, what kind of cologne does Brad DeLong wear? I'm sure that Justin Fox knows.Finally, which academic economists smell the best- conservative, neoconservative, paleoconservative, liberal, or neoliberal? A ranking would be helpful.
I did have breakfast once, years ago, with Brad, but have no memory of any particular odor other than perhaps the smell of pancakes cooking at Kaffee Barbara. I've been to a couple of AEA annual meetings and can testify that things didn't smell bad there at all. But I'm afraid I have committed the classic mainstream-pundit sin of extrapolating grand conclusions from meager evidence. Thanks to the magic of the blogosphere, though, I can now ask for help. Comments from economists' spouses, friends, workout partners, etc. are all welcomed.
April 25, 2007 5:16
Smarmy writing and socialist health-care
Since most of the commenters to this blog (including my Dad) are left-wing extremists, I figured I'd better immediately share this view from the other end of the political spectrum that just landed in my email inbox:
Dear Dubious Capitalist:
I just wanted to tell you that for a professional writer, your smarmy, trying too-hard-to-be-clever, sound byte style of writing is extremely hard to read, let alone understand. I can't believe how much Time has changed. Once Henry Luce was gone, the magazine started a 180 degree turn. It is now unrecognizable, and the "blogs" attached to it are ridiculous. On a specific point, health care, it is obvious you don't have much experience with this very complex issue, and neither does Ron Wyden, whose opinion on the subject you admire. If you think a socialist heath care system is the answer, you are wrong. It's OK for skinned knees and bee bites, but once you have a serious illness, your quality of care will be greatly diminished from what we receive today. Of course, most people who are well off financially will be able to buy their way out of the system. But everyone else will suffer the lowest common denominator health care.
Very truly yours,
Someone Who Knows More Than You About Healthcare.
I find the whole Henry Luce thing amusing, given that the early Time magazine was mocked for its trying too-hard-to-be-clever, sound byte style of writing. But whatever: I was liveblogging a speech, and Someone Who Knows is certainly right that I was being superficial and glib.
As for the substance:
(A) I don't know if Wyden's plan is actually workable, but also don't think it's really socialist. (And hey, what's so wrong about being sociable?) It mostly involves setting some ground rules and then letting the various parts of the health-care industry work things out amongst themselves.
(B) I was under the impression that one of the biggest problems with the U.S. health-care system is that we spend too much money helping people with serious diseases and not enough on primary and preventative care. Someone Who Knows appears to be saying that socialized medicine would fix that misallocation of resources. Or am I reading that wrong?
(C) A system that guarantees lowest-common-denominator health-care to all--as long as the denominator is not too low--and then allows the affluent to buy a higher level of care if they so desire (which is how things work in Australia and the U.K., if I understand correctly) would be a dramatic improvement over what we've got in the U.S. right now.
April 25, 2007 3:35
I'll take my neoconservatism with a side order of fries, please
On the train ride back from Washington Tuesday night, I did some of the reading that Brad DeLong assigned me after my first attempt at writing about neoconservatism. The first thing I got out of Irving Kristol's Fall 1995 Public Interest article on "American conservatism 1945-1965" was that Brad was overdoing it when he said it was "false and stupid" for the Economist's Lexington columnist (a.k.a. Adrian Wooldridge) to claim that neoconservatism "began as a critique of the arrogance of power." Whether that's stupid is an opinion call, but it's definitely not false: Kristol makes pretty clear that neoconservatism began in reaction to what its founders saw as the overreaching of Lyndon Johnson's Great Society. That's what the early Public Interest, the movement's founding journal, was all about.
Then again, Kristol begins his essay by stating that "The Public Interest was born well before the term 'neoconservative' was invented, and will--I trust--be alive and active when the term is of only historical interest." Not quite: the journal ceased publication in 2005, and here we are still jabbering about neoconservatives. So Brad is right that the movement left those early days behind and moved on to entirely different places.
Basically, you can take your pick of neoconservatisms, and the Economist chose the early version. But why would anybody want to do that? Brad asked in a post Tuesday (appropriately giving full props to a certain Curious Capitalist commenter):
I think Paul Lukasiak has the right analogy: You can tell a "revolution betrayed" story of neoconservatism and say that everything would have been peachy if not for the hijacking of the movement by Irving Kristol, Norman Podhoretz, and their progeny; just as you can tell a "revolution betrayed" story of Communist Russia. But complaining that William Kristol, John Podhoretz, Paul Wolfowitz, John Bolton, and the Kagan brothers today do not have the analytical modesty and dislike of poorly-thought-out radical leaps of Daniel Bell and Daniel Patrick Moynihan is like complaining that J.V. Stalin failed to properly implement Marx's vision of a free and wealthy society of associated producers. Such a story has more than a little lunacy in it.
The most interesting question to ask of the "revolution betrayed" stories is why people feel compelled to tell them. Stalin at least (mis)cited Marx at every occasion. It's been a long, long time since I've heard a neoconservative refer to Bell or Moynihan as any sort of authority.
I have a partial answer, and I like it because it also helps answer why Brad and Paul Krugman, who on economic beliefs alone would seem to be in the center or perhaps even slightly to the right of the American mainstream, get so "shrill," to use Brad's term, about the neocons and their intellectual fellow travelers in the Republican Party.
The mainstream academic economics of the 1950s and 1960s (as personified by, say, Paul Samuelson) was already more oriented toward free markets and the importance of incentives than the bulk of liberal intellectualizing in those days. It still had its excesses, mainly an overconfidence in the possibility of Keynesian "fine-tuning" of the economy. But those were confronted within the discipline, by Milton Friedman and then Robert Lucas. And Marty Feldstein, another figure very much of the economic establishment, got his peers to start paying more attention to the incentive effects of taxes and government programs. Graduate students at MIT (Krugman) and Harvard (DeLong) in the 1970s and 1980s were taught all this stuff in class; they certainly didn't need Irving Kristol or, god forbid, Jude Wanniski to tell them that some of the liberal dogmas that evolved out of the New Deal were flawed. (You can get a flavor of this in the fascinating recent debate on supply-side economics between Krugman, DeLong, Bruce Bartlett and others on Mark Thoma's blog.)
Those of us too benighted to study economics, however, had to take our critiques of liberal verities where we could find them (because at Princeton in the mid-1980s, you generally weren't going to hear them in undergraduate politics and history classes). For my part, I started doing crazy things like reading the Wall Street Journal editorial page and talking politics with a couple of budding neocon classmates. Later on, I even subscribed to the New Criterion for a couple of years. I was never a convert, but I appreciated hearing intelligently argued alternatives to the standard liberal narratives.
So for me at least it's not so much a "revolution betrayed" story as a sort of "cafeteria neoconservatism." I took what I found interesting, and ignored the rest. Which may be naive, but I don't think it's lunacy. I guess Brad would call most of the stuff I found to be interesting "neoliberalism." But I'm not really clear on what neoliberalism is supposed to mean (other than that in Europe it means free-market zealotry). All I know is that I've got some neo in me. No, not that Neo.
Update: In the comments to this post, and on his blog, Brad invokes The Dread Alterman, Sworn Enemy of All Time Bloggers, who took Sam Tanenhaus to task a few years ago for perceived sins similar to those that prompted Brad to dump on the Economist's Adrian Wooldridge (a.k.a. "Lexington"). Anyway, I'd love to pick an ugly fight with Alterman, news of which would then spatter Rashomon-style through the mediasphere, but I'm afraid I don't get invited to the same fancy parties that he and Ana and Joe do.
Update 2: I'd like to offer a big howdy to "Altercation" readers, sent here grudgingly by The Dread Alterman himself. Just so you know, the previous paragraph is meant humorously. Also, an occasional host of fancy parties attended by Ana and Joe has reminded me that I have in fact gone to a couple of them. Just not to the really good ones where fights break out.
April 25, 2007 10:27
The Toyota-GM thing, a day later
Yesterday afternoon, Karen Tumulty over at Swampland e-mailed to ask if I had anything to say about Toyota passing GM in global sales in the first quarter of 2007. I tried but I really couldn't. Anybody who reads the business press has known for a couple of years that this was about to happen. Also, everybody in the auto business had long ago begun looking upon Toyota as the true industry leader, even though GM still sold more cars. Plus, Toyota makes lots of cars and employs lots of people (albeit far fewer than GM) in the U.S. And GM's doing great right now everywhere but the U.S.
But still, after having slept on it, I get it: This is an historic moment. Automobiles are the defining product of the modern industrial economy, and the clear No. 1 in the auto industry is now a non-U.S. company. (And while U.S.-based corporations are clear leaders in the post-industrial economy, if there truly is such a thing, I don't think Google is ever going to employ nearly as many people as GM did at its heyday.)
Why'd that happen? One reason is the big postwar mistake the U.S. made by encouraging corporations to take complete responsibility for employee health-care and retirement savings. That has saddled GM and its "Detroit Three" brethren with a huge drain on financial resources and managerial attention that their competitors don't have.
Another reason is the old story that the Detroit oligopoly grew fat and complacent in the postwar decades and was no match for lean and aggressive competitors from overseas. That tale seemed to have come to a happy end in the 1990s when U.S. automakers rebounded spectacularly. But in retrospect that rebound appears to have been the temporary side-effect of super-low gas prices that favored the big vehicles on which Detroit still had a near monopoly. Now the reality of global competition has returned.
Finally there's trade policy, which John Edwards brought up in his reaction to the Toyota news on Tuesday. Surely it has played some role. And past saber-rattling on trade is part of the reason why Toyota now does so much manufacturing inside the U.S. But at the same time, if we had entirely held back the flood of imports in the 1970s and 1980s, just think how crappy our cars might still be. Global trade may not be an unmitigated good, but it's still a good.
April 24, 2007 4:27
Lee Scott the health-clinic man
Says Wal-Mart boss Lee Scott: "Our goal should be for every man, woman and child in this country to have health insurance. The $2 trillion question, literally, is how do we get there?" You can get his whole speech here, so no point in running more quotes from it.
Scott also announced here at the World Health Care Congress that Wal-Mart will open 400 in-store health clinics over the next two to three years (it has 76 now), and up to 2,000 over the next five to seven years. They did an audience poll just before Scott started speaking, and if I remember correctly 37% (the biggest percentage) said Wal-Mart's clinic plan was mainly just a way to draw more shoppers into stores. Scott acknowledged the skepticism, and I'm sure the Wal-Mart-hating health-care Klein will be able to explain to me why this is the worst idea ever. But if anybody can reduce health-care delivery costs, it's the cost-crunchers from Bentonville.
Scott says half the customers at the clinics so far have been uninsured. That's pretty interesting.
And now he's done. No Q&A! What an outrage!
April 24, 2007 4:00
Ron Wyden says our health care system is a popsicle
Now I'm listening to Oregon Sen. Ron Wyden do a Q&A here at the World Health Care Congress in D.C. "The employer-based health system is melting like a popsicle on a summer sidewalk," he says.
Wyden unveiled his plan for universal health insurance in December, and he feels like the wind is at his back. In 1993, he says, the view in the business community "was that they couldn't afford health-care reform." Now, "the view is they can't afford the status quo." So when can we expect some legislative action? 2009, sayeth the senator.
None of this is news, I know. But Wyden's plan, which basically involves extending the current health plan for members of Congress to the nation as a whole--and removing responsibility for health insurance from employers--is simple and smart. And Wyden knows a whole lot about this stuff. He should be getting more press.
Next up: Wal Mart's Lee Scott.
April 24, 2007 3:43
The health care solution: Put another shrimp on the barbie
I just got finished moderating a panel at the World Healthcare Congress in Washington, featuring Dow Chemical CEO Andrew Liveris, GE Healthcare CEO Joe Hogan, and futurist/consultant/Scotsman Ian Morrison. A major conclusion was that we should all be more like Australians (Liveris is a native of Darwin; Morrison has spent a lot of time Down Under), leave work at 5, and go to the beach. Morrison advised that we all throw away our Blackberries. Yeah, that's really gonna happen.
Beyond that I wasn't able to write down many notes, because I was, you know, moderating. But I did get this fun fact down from GE's Hogan: GE's worldwide health care costs run about $2.5 billion a year. GE Healthcare's profits are about $2.5 billion a year. "We call it the natural hedge," he said.
April 24, 2007 8:11
Will Paul Wolfowitz, like the poor, always be with us?
Despite the best efforts of the Financial Times and just about everybody who works at the World Bank, Paul Wolfowitz is still in charge of the global lending (and ostensibly poverty-fighting) institution. He's also hired Bob Bennett (Bill Clinton's lawyer back in the day) to joust on his behalf and has promised, in the helpful words of the Washington Post, "unspecified changes in his leadership."
As this thing drags on and on, I can't decide whether it reflects more badly on Wolfowitz or on the World Bank itself. Former IMF chief economist Ken Rogoff and World Banker turned World Bank critic William Easterly have both weighed in on the subject recently. Both seem to think that (a) the World Bank is seriously messed up but (b) Wolfowitz is the wrong guy to fix it.
Rogoff:
I am sympathetic to the Bush administration's desire to catalyze change at the Bank. I have long advocated shifting the Bank's centre of gravity from lending to outright grants, a policy that the Bush administration strongly endorses. But choosing someone with no obvious background or experience in economic development was not the way to make progress on this front.
Easterly:
Wolfowitz came to the bank determined to fight corruption and perhaps redeem himself after Iraq by offering a compassionate, conservative brand of help for the world's poor. But Wolfowitz's program never really took wing. Trying to fight the corruption that all too often saps foreign aid was noble, of course. But bank staffers bristled because some corrupt regimes seemed to bother Wolfowitz more than others. Worse, his main objective -- transforming bad governments into good governments -- was simply unworkable.
Update: Bret Stephens has an interesting take on this in his column in the Journal today that's not the usual full-on WSJ editorialista defense of Wolfowitz. And wonder of wonders, they've made it available for all to read.
April 23, 2007 9:37
Dinner party chatter with the right-leaning centrists
Swampland emigrant Tom T (I love it that so far I'm only getting the cogent and nonabusive Swamplanders) wants to know, in a comment to my post about politicians' ties to Wall Street:
[W]hy is it that these "entanglements" are only a problem when the one entangled is a Democrat? Why didn't we hear more about Bush's entanglement with oil companies in 2000? Is it a coincidence that there's an oilman in the White House and Exxon/Mobile is posting record profits?
I think you know the answers to all of these questions, though I doubt you're brave enough to write them on your blog. But if you want to be more than purveyor of right-leaning dinner party centrism (and I'm not sure why would, given that being such a purveyor is the only way to rise in the media establishment), you should address them.
Because my bravery knows no bounds, I hereby offer my (right-leaning, centrist) answers:
1) I don't think it's only Dems who catch flak for this stuff, although Terrapin is probably right (see those same comments) that the media jump too quickly on the hypocrisy angle when in fact we want politicians who vote against their personal financial interests. I would hope that the activities of Giuliani Partners in particular get some serious scrutiny in the press. If they don't, raise some hell.
2) I remember Bush's and Cheney's oil industry ties coming up a lot during the 2000 campaign. I was living in the UK then, so my point of reference is a little off. But the information was pretty widely known.
3) Yeah, it's mostly a coincidence. Skyrocketing oil demand in Asia and flagging production from some of the world's biggest (non Exxon/Mobil-owned) oil fields are the biggest reasons why the company is making so much money right now. The fact that we undertax oil use, have weak and inconsistent fuel-efficiency standards and subsidize domestic oil drilling that doesn't need to be subsidized--now that's where the oilman in the White House comes in.
As for the right-leaning dinner party centrism: My wife and I throw lots of dinner parties, I am a centrist, and by Upper West Side standards I'm a veritable right-winger. But I think the issue with many mainstream journalists is that they're left-leaning centrists who want to demonstrate that they're entirely objective. Which leads them into all sorts of strange behaviors that the Republicans have been far more adept at exploiting in recent years than the Democrats have. Although thanks to, among others, all those Swampland commenters, that may be changing.
April 23, 2007 10:34
The right questions to be asking about politicians and big-money finance
Karen Tumulty over at Swampland has a question (spurred by this Washington Post article on John Edwards' work for Fortress Investment Group) on politicians' ties to big hedge fund and private equity money:
Is this going to be an issue as the campaign moves forward? My own business writing days ended long ago, when derivatives were still considered cutting-edge. So I'd like to ask our blogging cousin Justin Fox over at the Curious Capitalist (who has a growing cadre of fans among the readers of Swampland) for his perspective: Are these kinds of relationships getting the kind of scrutiny they deserve? And what are the right questions to be asking?
I don't know if I really have an answer, oh growing cadre. I mean, it seems pretty clear that if you have a revolving door between big-money finance and government, that will influence the decisions government makes. We've pretty much always had that revolving door for Treasury secretaries; lately it seems to be opening up for ever more politicians and government officials, mainly because there's just so danged much money sloshing around in hedge funds and private equity and Wall Street.
So yeah, it deserves more scrutiny. My problem is with which questions to ask. "Hey John Edwards, are you a tool of the hedge fund industry?" doesn't seem like it would produce a very informative answer. Then again, maybe just the fact of asking of such questions -- repeatedly -- matters more than the content.
Update: I'm sure the comments thread on this will stay over on Swampland, so I thought I'd share this from one Tom T:
... don't you see that this focus on candidates' personal lives and finances is destroying the country? Can't you? Isn't it more important what he thinks about universal health care?
I have some sympathy with the sentiment: focus on policy, not petty politics. But the growing entanglement of politics and Wall Street is a really big policy question, especially when it relates to trade. Wall Street loves free trade and free financial markets, because it's been the biggest winner in economic globalization and deregulation. I tend to generally like free trade and free markets, too, so maybe it's a good thing that all those revolving-door types have been skewing our economic policies in favor of them. But their advice and/or their decisions are not entirely disinterested, and that seems to me to be worth talking about. Even if it briefly distracts us from John Edwards' health-care plan.
April 23, 2007 7:20
Is "neoconservative" on its way to becoming the new "liberal"?
Economist Brad DeLong, as part of his long-running campaign to persuade the world that journalists are flawed (and many are; unlike academic economists, who are right about everything and also smell great!), had a post Saturday tearing into the Economist for allegedly mischaracterizing the neoconservative movement. Brad apparently thinks Daniel Moynihan and Daniel Bell weren't neoconservatives, while Norman Podhoretz and Irving Kristol were. He writes:
This isn't rocket science people. This intellectual history isn't hard to get straight--if you care, and if you try.
My background in this particular chapter of intellectual history is limited to having read, long ago, Norman Podhoretz's Making It and Sidney Blumenthal's Rise of the Counterestablishment, but it seems like Brad has even less of a grounding in this stuff than I do. The neocons were lefty, urban intellectuals who became disillusioned in the 1960s with the Great Society and the anti-war movement. They were "mugged by reality," as Podhoretz put it. Bell, Kristol and Podhoretz were all card-carrying neocons. Moynihan strikes me as a more complicated case, but he was writing for Kristol's and Bell's The Public Interest and it's certainly not wrong to label him a neoconservative.
Sure, later on, Bell and Moynihan went in different directions than Kristol and Podhoretz (they also didn't have sons who made careers of stomping loudly in their fathers' footsteps). But the Economist's claim that neoconservatism began "as a critique of the arrogance of power" has far more basis in historical fact than Brad's definition of the movement. He says that "real neoconservatives" combined extreme foreign policy hawkishness with supply-side economics and a belief "that African-Americans got too easy a ride in modern America, and needed to be made poorer and less powerful." As intellectual history, this is dubious (most of the neocons didn't care about economics, and I don't think it's fair to say that their anti-affirmative-action tendencies meant that they wanted blacks to be "poorer and less powerful"). But as political rhetoric, it may turn out out be brilliant.
Basically, Brad is defining neoconservatism as everything about American politics over the past 30 years that he didn't like. Which is, you might remember, how conservatives began defining "liberalism" back in the late 1970s--with great success, mind you. So just you wait: Pretty soon, Republicans will start getting railroaded out of office for being "neocons." This will, in most individual cases, be entirely unfair. But it will also be kinda funny.
Update: Brad DeLong has a comment in which he makes pretty clear that my crack that "it seems like Brad has even less of a grounding in this stuff than I do" was unfair. I still think that, by removing Bell and Moynihan from the neocon storyline and throwing the supply siders and racists in, he's trying to define neoconservatism to match his own political dislikes. But the Kristol family is certainly helping him: the link Brad gives to William Kristol's essay appears to be broken, but I came across an Irving Kristol essay on the "Neoconservative Persuasion" in which the senior Mr. K lists "cutting tax rates in order to stimulate steady economic growth" as a key neocon policy. (Although he quickly adds, "This policy was not invented by neocons, and it was not the particularities of tax cuts that interested them...") I can testify that Jude Wanniski, Mr. Supply Side himself, despised the neocons. But he was a pretty quirky fellow.
Update 2: Brad DeLong ... aww, just read the comments.
Update 3: It has, to adopt the terminology of commenter CMike, gone past the first round. (Not that I'd say I'm winning or anything.)
April 21, 2007 4:46
A modest proposal on campaign finance and executive pay
Michael Kinsley's column in Time this week is about campaign finance, among other things. I know this not because I read it in the magazine: Curious Capitalist Jr. had a fever Friday and Mrs. CC was out of town, so I didn't go into the office and therefore do not have a copy. I got to Kinsley's column instead via Ezra Klein's blog. Which just struck me as very, you know, 21st century. Anyway, here's how Kinsley wrapped things up:
The ability to raise money has become an independent test of a candidate's prospects, completely apart from money's traditional role as a way to buy things. Candidates raise money not to purchase TV time and hire political consultants. They raise money to prove that they can raise money. All the major candidates have rejected federal subsidies in order to avoid the contribution limits that go with them. This includes McCain, whose name is on McCain-Feingold, the most recent failed attempt to curb money's role in politics. When the press started reporting that his campaign was in trouble, McCain hired a major corporate lobbyist as his finance chairman. The press approved. This showed that he was serious.
All of this parallels a development in the larger economy. For most people, the point of money is that you can buy things with it. But at the top, where people already can buy whatever they want, the purpose of money is keeping score: making sure that you don't slip down in the Forbes 400 list.I have been waiting for the day when how much money a candidate raised would be a major issue in the campaign itself. I thought this might make campaign finance self-regulating: candidates would refrain from raising too much money for fear it would be held against them. Boy, did I get that one backward.
The solution here is so simple: We just have to keep campaign finance data secret. Then candidates would worry far less about how much money they'd raised, and would spend far less time trying to raise it. Hushing up executive pay data would have a similar effect. If nobody outside the board of directors and the head of HR knew how much the CEO was making, there'd be far less keep-up-with-the-Home-Depots upward pressure on pay.
I'm kidding about this, I think. Although when you think about the impact that increased disclosure has had on both campaign spending and executive pay over the past couple of decades, you've got to wonder.
Update: My old friend Professor Bainbridge weighs in with the claim that the "keep-up-with-the-Home-Depots upward pressure on pay" I cite is a myth. In Canada, at least.
Update 2: Here's a link to the Amazon page of the book, Voting for Dollars, that a couple of the commenters mention.
April 20, 2007 4:31
Condi: Dudes, we're not perfect
I spent Thursday in Washington listening to members of the Bush administration explain themselves to the Young Global Leaders of the World Economic Forum (a club to which I, absurdly enough, belong). The deal was that most of the chats were off the record. I'd feel worse about adhering to that agreement if anything truly revelatory had been said, but I can testify that these people are pretty diligent about staying on message even when off the record.
Anyway, Condoleezza Rice was the shining exception to the whole off-the-record thing. To the extent that the entire transcript of her remarks and subsequent Q&A are online, and so is the video.
That renders the notes I scribbled all over my Young Global Leaders program entirely superfluous. Now I can just cut and past the examples straight out of the transcript. Anyway, I thought I detected a mini-theme of semi-apology in her remarks. Although it may be that, even with the "mini-" and the "semi-", I'm overstating it. You be the judge:
From her speech: "We know that change is difficult and that high-minded principles don't always mean that you're living up to them."
In an answer to a question about the Iraq war: "We're not perfect. We're not always going to make the right decisions. We will always make decisions that we thought were right. And so we have to recognize that these are complicated times."
A little further on in that same response: "I would never say that everything that we've done would -- has been good in this cause, but it has always been in good faith."
Not quite "mistakes were made." But interesting. Oh, and here's what Condi and World Economic Forum founder Klaus Schwab look like when photographed with a cell phone from about 10 rows back:
April 20, 2007 11:46
Henry Silverman talks about Sarbanes Oxley, private equity and gray hair
My column in the current Time is about Realogy CEO Henry Silverman's return to the private equity world he left almost 15 years ago (he was a partner at Blackstone, and before that at Saul Steinberg's Reliance Group Holdings). It took most of the space I had just to explain who Silverman is and why he matters, so I don't quote him much in the column. But I've put together an abridged transcript of our April 12 interview (supplemented in a couple of places by subsequent e-mails). Just in case you're wondering, the private equity CEO who sought Silverman's advice about going public (see below) was not Blackstone's Steve Schwarzman.
Is private equity eclipsing public markets?
A principal reason you went public in the past was access to capital. You do not have to be public anymore to have that access to capital, whether it's debt or equity. The Realogy acquisition was roughly a $9 billion deal, which would have beeen very difficult to do 10 years ago by a private company. It was actually almost small by today's standards.
Now, that said, a number of the private equity firms are considering going public. One of the reasons to be public which I assume they are viewing is that it can help with recruitment and retention of key personnel. There's a lot of reasons to be public, there's a lot of reasons not to be public, but you don't have to be either one. I think that's the point, that companies today and boards of directors and managements have a choice as to whether they want to be owned privately or publicly. That was not the case for large companies 10 years ago.
Were you frustrated with the way the market treated Cendant?
I was asked by the CEO of one of the private equity firms what my advice would be as to whether to stay private or go public, and my answer was, "When your stock is going up, being public is great. When your stock is not going up, it's not so great."
Because when your stock is not going up, everything you do is under a microscope and is criticized by investors-whether it's the strategic activities you undertake or even your compensation. I had a CFO who once said to me, "When your stock is going up there's no amount of money that shareholders care that you make and when your stock is going down $1 a year is too much." I think that's absolutely accurate.
Do you ever think staying in private equity might have been a better thing to do?
Oh yeah. Yes I do. When I was at Steve Schwarzman's 60th birthday party, observing nonstop entertainment, etc., etc., I thought to myself, wow. Yes, there are certainly cycles, and in the current iteration of the capital markets clearly the private equity guys are sitting in the catbird seat.
I'm on the Business Roundtable, the CEOs of the largest 100-odd companies in the country. Most of these people wanted very much to be the CEO of a large public company, but realize that it's not exactly what they had anticipated, for lots of reasons. One is competition has gotten a lot worse, and more global. Second shareholders are much different than they used to be.
It used to be that shareholders would vote with their feet, meaning that if they didn't like what you were doing they would sell their stock. Now shareholders will try to find an activist investor who will lead a charge to unseat your board and fire you. It's a huge sea change in investor attitudes, and it's obviously what has caused many people to consider privatization.
I personally believe that Sarbanes-Oxley, which is what people talk about, that's a red herring. The compliance with Sarbanes Oxley is not at all any more difficult than what 99.9% of companies did anyway.
But CEOs get paid a lot more now, too. Are all these people at the Business Roundtable really complaining that "woe is me"?
Yes, CEOs are paid more, and no, most of them are not saying "Woe is me." But it is different. It is harder than it was. And so that certainly might compel people to think that private equity is a good solution.
Why did you break up Cendant?
The market said, "We don't need you to manage our risk. We can diversify our own portfolio. That's what we're paid to do." It really catalyzed in 2004, when we were like the 100th most profitable company in world and our market cap was in the 300th range. If you owned Cendant the day of the split up, you're up 62% today. So clearly the sum of the parts was worth more than the whole.
Are you planning to step down at the end of the year?
Or sooner. Whenever Apollo wants me to say goodbye.
Will you retire after that?
No no no. God no.
What are you going to do?
I don't know, but I'm definitely not going to retire. I think that would be a very bad idea.
Would you want to run a public company again?
I don't think I'd ever want to get back into that. But I'm not at all certain that I wouldn't be happy perhaps being parachuted into one of the various portfolio companies that one of the private equity guys owns where they're looking for some gray hair. And by the way, it is gray now.
What business accomplishment are you proudest of?
I think that probably my finest hour was how we handled the crisis after we found the fraud at CUC, because we're the only company that survived a major accounting fraud and I'm the only CEO that survived a major accounting fraud. We moved immediately to find out what happened and tell the truth the moment we discovered something was wrong. Keeping the company together and eventually creating $20-plus billion in value out of something which could have been zero was clearly ... certainly the hardest I've ever worked.
April 20, 2007 11:11
Henry Silverman: Capitalist icon
My new column is about the latest twist in the remarkable career of Realogy CEO Henry Si