February 29, 2008 10:40
Exclusive images from behind the Orange Curtain!
Sorry for the anemic posting this week. I seem to have mostly recovered from the horrible disease I had a couple days ago, although I've been warned by lots of people (including Curious Capitalist Jr.) that it will probably recur. And now I'm in Southern California for a family thing (the funeral of a beloved grandmother-in-law, to be specific). So there won't be a whole lotta blog output today either. But I have taken these lovely photos with my Blackberry from the "sun deck" of the Holiday Inn Express in Costa Mesa. Which I can recommend for the surprisingly high quality of its linens. But not for the view.
Update: My Costa Mesan cousin thinks its terribly unfair of me to run two such ugly photos from one of the most beautiful places on the planet. So here's a shot of Blackie's Beach I took last summer:
February 28, 2008 11:08
Cancel those Chinese classes, folks
So I'm having breakfast this morning with Haiyan Wang and Anil K. Gupta, the wife-and-husband team behind the Maryland-based China India Institute (not under any circumstances to be confused with the India China Institute). They're giving me their--quite compelling--spiel about just how amazingly unprecedentedly transformative the rise of China and India will be for the global economy and for businesses everywhere.
At one point I stop Wang--who grew up and was educated in mainland China--and ask, "What language is all this going to happen in?" She gives me a slightly disbelieving look and replies, "English, of course."
Gupta chimes in (this is a bad paraphrase because I wasn't taking notes), "People ask me if their kids should learn Mandarin. I tell them, 'Maybe, but only after they've mastered science and math.' "
This is an argument I've harped on before. But it was interesting hearing it made so vociferously by a couple of foreign-born globalizers. Rise of China or no rise of China, English is THE global language and will only become more so. The U.S. could disappear from the face of the earth and English would still dominate. It's a network effect kind of thing.
Now I'm all for learning other languages. Knowing German and Dutch has enriched my life in all sorts of wondrous ways. (I can sing along with The Magic Flute! I can laugh at the jokes of Van Kooten en De Bie!) And, uh, Chinese might be a little more useful than German and Dutch. But essential to success in tomorrow's business world? No, not really.
February 27, 2008 2:21
Fannie and Freddie conquer a bit more of the real estate world
A mere three years ago, the nation's two great government-created, privately owned, politically well-connected buyers of home mortgages, Fannie Mae and Freddie Mac, were in disrepute. They'd both been buffeted by massive accounting scandals. Their CEOs had resigned in disgrace. Congress was talking about significantly reining in their powers.
So what's happening now? Congress approved a big, if temporary increase in the size of loans Fannie and Freddie can buy as part of its economic stimulus package (and don't be surprised if it eventually becomes permanent). And today the Office of Federal Housing Enterprise Oversight, announced that it was going to remove caps on loan portfolio growth at the two companies that had been imposed in the wake of the accounting mess.
In short, official Washington has decided to give Fannie and Freddie substantially more sway over the nation's mortgage markets than they had before. Why's that? Because Fannie and Freddie are about the only people left who are willing (maybe able is the better word) to finance mortgages at less-than-punitive interest rates. For years many on Wall Street and some in Washington had been arguing that the growth of markets in securitized mortgages made F&F superfluous. They don't look so superfluous now.
Fannie and Freddie are able to remain largely unaffected by the craziness roiling mortgage markets because of the assumption among investors that, if too many of the loans they bought went bad, taxpayers would bail them out. It says explicitly on Fannie's and Freddie's debt securities that they aren't guaranteed by the U.S. government, but belief in what's called the implicit guarantee keeps their financing costs low.
Nothing comes for free, though. In the mid-1990s, the Congressional Budget Office estimated that the implicit guarantee was worth about $6.5 billion a year to Fannie and Freddie. It's probably several times that now. Who pays for it? I guess it's spread among the taxpayers who would bear some of the cost of a hypothetical Fannie/Freddie bailout, and the holders of Treasury bonds and other assets that would lose value if the government just printed lots of money to fix the problem.
Is this a good deal for those of us who don't own Fannie or Freddie shares? I used to think it wasn't. Now I'm not so sure.
February 26, 2008 6:51
Google gets into the cable-laying business (which I don't think is quite as lucrative as the search-advertising business)
One of the most fascinating economic stories of the past decade has been how the hapless investors who poured billions of dollars into Global Crossing, Worldcom and the like paved the way for the success of Indian outsourcers, Web 2.0 bandwidth hogs and all manner of other innovative enterprises. These telcos (over)built a global network of fiber optic cables and then conveniently went bankrupt, allowing their successors to charge the super-low rates that enabled new uses of the Internet to flourish while the investors who paid to lay all that cable could mostly only watch and sigh. See, Dan Gross is right! Bubbles are the best!
So it struck me as the end of a glorious era today when Google announced that it was joining five telcos to lay a new $300 million undersea cable between the U.S. and Japan. From the press release:
The new cable system – named Unity – will address broadband demand by providing much needed capacity to sustain the unprecedented growth in data and Internet traffic between Asia and the United States. Unity is expected to initially increase Trans-Pacific lit cable capacity by about 20 percent, with the potential to add up to 7.68 Terabits per second (Tbps) of bandwidth across the Pacific.According to the TeleGeography Global Bandwidth Report, 2007, Trans-Pacific bandwidth demand has grown at a compounded annual growth rate (CAGR) of 63.7 percent between 2002 and 2007. It is expected to continue to grow strongly from 2008 to 2013, with total demand for capacity doubling roughly every two years.
True enough. But as Google and other big bandwidth users actually start paying full price for what they'd been getting at a discount or for free, their profit margins will inevitably be squeezed. It's all part of growing up, I guess.
February 25, 2008 3:15
China's economy continues to dominate in the polls, if not in reality
Another poll question on the economic power of nations, this time from Gallup (via Greg Mankiw):
"Which one of the following do you think is the leading economic power in the world today?"China: 40 percent
The United States: 33 percent
Japan: 13 percent
The European Union: 7 percent
India: 2 percent
Russia: 2 percent
This is even worse than the Pew poll result that Barbara Kiviat blogged about here a few days ago. I was shocked by Pew's finding that 30% of Americans thought China was the world's leading economic power, but at least they got a larger number (41%) putting America No. 1.
Just to refresh, here's Barbara's chart of the actual global economic standings:
Now I don't want to discount the importance of China's rise and its wrenching effect on some American industries. But I find it really worrying that most Americans don't understand that the U.S. remains far and away the richest and most powerful nation on earth. Because if our politicians listen to voters who think the Chinese have it better than we do, they're going to enact some really crazy trade laws.
February 25, 2008 9:19
Back and significantly worse for the wear
So I'm back from skiing at (downhill) and near (cross country) Gore Mountain in the Adirondacks. The photo above is taken from somewhere around the top of the mountain. I'm pretty sure I took it right after making a couple of cell phone calls, because (a) I'm a total dork and (b) the tops of mountains are the only places in the Adirondacks with cell phone reception.
Anyway, I've returned with some sort of dread Adirondackian disease and I have a magazine column to write, so don't expect anything even approaching Kiviatian depth or creativity for the next couple of days (unless I can con her into writing some more posts).
February 22, 2008 5:22
My final post: Farewell, dear readers!
My colleague Andrea Sachs has a story in the Global Business section of this week’s magazine about Seth Godin’s latest book.
Godin is something of a character, a marketing guy who sells a ton of books largely by feeding people recycled common sense. I met him last year and asked him about that -- why people perpetually want to be told things they already know. I thought he had an interesting answer, and I’m glad I finally have a chance to share it:
There are no facts you need to buy a business book for. Facts are all for free now on Wikipedia. Facts are everywhere. A business book is a talisman, it’s a souvenir of the idea. It gives you permission to do two things. One, believe in something you wanted to believe in in the first place. And two, have a conversation about it. So the difference between me and, I don’t know, Dale Carnegie is Dale Carnegie spoke to people, and what I think I do for a living is help people have a conversation and leave me out of it. So if I can call a remarkable product that stands out a “purple cow,” now in two words you can say something to someone else and you both know the shortcut. You can both talk about it.
In case you want to know what Godin looks like, here’s a picture of his action figure (I told you he was a marketing guy):
And here is a picture of Godin introducing himself to my Jack Bogle bobblehead:
And on that note, I'm guessing Justin will be along any minute to reclaim his blog.
This has been so much fun, you guys. One thing I don’t like about working at a big publication is that I usually feel so far away from my audience. It has been such a treat to be able to have a back-and-forth with such smart readers. Curious Capitalist comment posters are the best!
This whole blogging thing has also been a lot of work, much more than I thought it would be. So if you'd indulge me for just a moment, I'd like to say thanks to the people who helped me over the past week, especially with the technology end of things. Thank you Malik, Caitlin, Feilding, Vanessa, Lon, Jackson, Beatriz, Mark and Xtium’s IT wizards.
Most of all, though, thanks Justin! I'm sorry I didn't have more to say about Danish taxation and Dutch pop culture, but the good news is that I dug up the paper that went with that Johns Hopkins Provost's Undergraduate Research Award you mentioned when you introduced me. Now everybody can read all about the fascinating place that is Salisbury, Maryland here. Just watch out, it’s a PDF!
February 22, 2008 12:53
The price of a lottery
The Associated Press had a great piece of enterprise reporting earlier this week about how much money California could get for privatizing its lottery. Governor Schwarzenegger has been throwing around the figure $37 billion -- a particularly nice number considering the state faces a $14.5 billion budgetary shortfall -- but the AP got its hands on documents showing that $37 billion is on the very high end of what Wall Streeters think the lottery is worth. Lehman Brothers pegs the value somewhere between $16.1 billion to $37 billion over 40 years with about half of that paid up-front, while estimates from Bear Stearns, Citibank, Goldman Sachs, JP Morgan Chase and Merrill Lynch typically put the value of a long-term lease between $7 billion and $29 billion with up-front payments of usually less than $9 billion.
The idea of turning over lotteries to private investors, who can ostensibly squeeze out more value, is a popular one in statehouses these days. More than a dozen states are considering such deals, including New York, Florida and Massachusetts. Indiana and Illinois have come close to going private, but so far no state has.
It’s a pretty appealing set-up for a state, especially at a time when the economy is slowing and property values, which form the foundation of many local tax systems, are flat lining.
But as the California estimates show, no one really knows how much a lottery franchise is worth. Much of it depends on what a new private owner would be allowed to do. According to the AP, for the California lottery to command the highest prices being discussed, a new owner would have to be able to do things like sell tickets over mobile phones and PDAs, in malls, on college campuses, at bus stations and through ATMs. Whether or not we want a society in which we are constantly bombarded by enticements to gamble is a really important question that should be discussed out in the open – and not just because someone at the Associated Press was smart enough to file a public records request.
In October, I wrote a story about private investors buying long-term leases of toll roads. Toll roads and lotteries have similar cash-flow characteristics, so the people interested in leasing one tend to be interested in leasing the other. As I pointed out in that article, it makes a lot more sense for a state to turn to the private sector when it wants to build a new road, since the private investor can then assume some of the risk. You can do studies, but no one really knows how many drivers a new road will get or what kind of tolls will be collected until it’s built. For a state to not have to bear the weight of that financial uncertainty all on its own is incredibly useful.
A lottery, though, is a pretty sure thing. States already have systems in place and they know exactly how much they can make through ticket sales – in California, $3.3 billion a year. A private lessee can introduce innovations, like lotto tickets at ATMs, to boost sales, but there’s not really any reason why the state of California couldn’t simply choose to do those things on its own.
Except, perhaps, for political reality. A big appeal of signing over things like toll roads and lotteries to private investors is that politicians then avoid having to take controversial stands on issues like raising tolls and promoting gambling in shopping malls. Of course, the reason governments want to avoid having those conversations is the precise reason why we should be having them. These are hardly black-and-white issues. States need money to fund themselves. But are these the ways we want to drum up funding? It’s a question more people should be asking.
February 21, 2008 6:35
The real cost of the Iraq war
The Nobel-Prize-winning economist Joe Stiglitz, who is a professor up at Columbia University, swung by the office this morning for a meet-and-greet. Noble-Prize-winning... must be a nice way to be introduced.
Stiglitz was here to promote his soon-to-be-published book on the true cost of the Iraq war, which he and Linda Bilmes of Harvard University put at $3 trillion. This is a little bit higher than what some other people have said in the past. In fact, it’s nearly a trillion dollars more than what Stiglitz and Bilmes themselves were saying not much more than a year ago.
The figure is so big because Stiglitz and Bilmes don’t just count operating costs – like the $12.5 billion a month is takes to run the war on the ground – but long-term expenditures, too. They tally up things like how much money the government will have to spend taking care of disabled veterans, what the war has done to the price of oil, and the cost of replacing military equipment that is wearing out much faster than it would have otherwise.
It’s kind of gloomy stuff. But the biggest shock is how hard it was for Stiglitz and Bilmes to find and get access to all the data, considering that war is a taxpayer expense. The two academics have been filing Freedom of Information Act requests for years.
My guess is that you’ll start reading more about all of this in the op-ed pages in about a week, when the book comes out. In the meantime, if you want an eight-page overview that’s a little dated, but will still make it sound like you’ve read the book, check out the paper Stiglitz and Bilmes wrote in the Milken Institute Review in 2006. You can find it here, as a PDF.
February 21, 2008 9:47
Stagflation is the word of the day
The other day I was told that most blogging is pretty much about linking to things other people have written. I've got to get to a meeting now, so I'm leaving you with these:
February 20, 2008 6:06
Trivia Night! answer
On Monday, I asked:
What is almost always the top-selling item in any grocery store?
The answer: bananas. Way to go, comment-poster tomsteuber!
What's really wild is that tomsteuber is also correct that bananas are the top-selling item at Wal-Mart (as measured by dollar sales). And Wal-Mart, as you may or may not realize, is not only the nation's largest grocery store, but a mass mechandiser, as well. So that means that even when bananas go head-to-head with Swiffers and lawn mowers and DVDs, they still win.
What is it about bananas? I called Wal-Mart to find out. Unfortunately, the man in media relations, who was very pleasant, said that the company didn't have any "consumer insight" to share with me on that.
So I asked this man:
His name is Joe. I ran into him on the sidewalk this morning on my way to work. I asked Joe because at 9:30 on a Wednesday morning he was walking down the street carrying a bunch of bananas. No bag or anything.
Joe said he ate bananas for the potassium. Then he told me about how our bananas are dying. There was a show about it on NPR. If you care at all about bananas (and judging by sales at Wal-Mart, you do), listen to this broadcast. It's fascinating -- Terry Gross interviews a guy named Dan Koeppel who just wrote an entire book on bananas. I haven't read it, so I can't say how it stacks up to the best book ever written about a single fruit, but maybe someone out there has, and can fill us in.
Anyway, why bananas? I don't know. It's not just an American thing. As Dan Koeppel pointed out on NPR, bananas are best sellers all over the planet. People in Uganda, he said, eat 500 pounds of bananas a year, compared to 25 pounds here in the U.S. Somebody get those people a Wal-Mart!
The other night I brainstormed with my friend Sugi about what it is that so draws us to the banana. The packaging is pretty great. Doesn't matter if the skin gets schmutzy, since you take it off (unlike an apple), and when you do, it doesn't make a mess (unlike an orange). No matter what time of day it is, there is a good reason to eat a banana. On cereal at breakfast, brown bagged with a sandwich for lunch, as part of a banana split after dinner. Bananas are popular with lots of types of people. With babies, with athletes trying to avoid cramps, with anyone looking to make a fruit smoothie. Plus, they tend to be priced cheaply enough so that you think, "Well, I might as well buy the whole bunch of them," until they go brown in two days and you have to throw them out and go buy more.
I guess at the end of the day, the banana is just an all-around great fruit. And now I kind of want one.
February 20, 2008 2:04
$100 a barrel oil, here we go: Part II
One thing people tend to care about a lot when oil gets really expensive is what happens at the gas pump. Gas prices broadly follow the cost of crude, but there's a lot more that goes into how much a fill-up sets you back. I called up Oil Price Information Service (OPIS), a group that follows fuel costs, and asked them to send me some data in order to show how closely those two variables have tracked each other over the past few years.
This chart shows the relationship between a gallon of unleaded gasoline and a one-month oil futures contract on the NYMEX, as expressed by month-over-month percentage change in price. That might seem a little cumbersome, but in order to honestly put two variables on one graph you can't use the prices themselves (thanks for the help on this, Feilding and Jackson):
What you see if that gas-price increases haven't kept up with the recent spike in the cost of oil. The reason, of course, is simple: Oil is a commodity that trades on an open market and is therefore susceptible to all sorts of shocks, like the explosion at a refinery in Big Spring, Texas earlier this week. That probably doesn't weigh on the mind of the person who owns your local convenience store nearly as much as what the guy at the gas station across the street is charging.
So the optimistic take-away is that gas prices don't have to rise just because oil prices do. Although, that is really only a short-term argument. The long run, unfortunately, is a whole other matter.
February 19, 2008 6:02
$100 a barrel oil, here we go
Big news today in commodities: crude oil closed above $100 a barrel for the first time ever.
In the days that follow, you're going to be hearing a lot about what OPEC will do when it meets on March 5, and maybe some more about Venezuela's president threatening to cut off exports to the U.S.
Let's all just remember a few things by way of context. First, oil trades on a world market. Second, here in the U.S. we get more oil from Canada than anywhere else. Straight from the Energy Information Administration to you:
The top five source countries and their percent share of U.S. total net petroleum imports were:Canada (17.5%)
Saudi Arabia (11.9%)
Mexico (11.8%)
Venezuela (11.2%)
Nigeria (9.1%)
That's right, Canada. Once again, Canada has the answer.
February 19, 2008 3:49
Why we do the stupid things we do
It's hard to swing a dead cat without hitting a behavioral economist these days. In case you're one of those people who only reads this blog for the trivia, and you don't normally follow economics, I'll explain. Neo-classical economics (i.e., what you learned as a college freshman) assumes that individuals are rational and act in their own self-interest. Behavioral economics, which borrows heavily from psychology, holds that individuals are deeply flawed and often make decisions that to a rational observer would be considered "mistakes." Right now, it's really hip to be in the second camp.
Dan Ariely, a behavioral economist who just left MIT for Duke, has a new book out today on the subject. There are a ton of these books floating around, but if you're a beginner, Ariely's is a fine place to start. It describes a slew of experiments, many of them his own, which shed light on a variety of weird economic behaviors, like why we go berzerk over things that are free and how we overvalue the stuff that we own.
A lot of it supposedly goes back to the fundamental way we see the world, which worked all fine and good in the wilderness but trips us up now that we're in civilized society. Consider this groovy demonstration of how easily our perceptions can be manipulated, from Ariely's web site:
Earlier today I asked Ariely to talk about how that translates into, say, deciding what we should pay for the things we want to buy. He described one of the experiments in his book:
Here's the table he refers to:
It's pretty stunning. (As an aside, I should say that I am very much against ever giving anyone your Social Security number.)
Now, of course, you're not going to go to the mall having just rehearsed the last two digits of your Social Security number. But there are other ways that your decisions can be influenced by data that shouldn't be relevant -- and influenced intentionally. A number of years ago, when Williams-Sonoma wasn't selling its $275 bread machine, instead of pulling it from the shelves, it added a more expensive version. Once $275 seemed like a bargain for a bread machine, sales spiked (PDF).
February 18, 2008 4:40
Trivia Night!
Technically I'm off for Presidents' Day, which is why today’s post will be short and sans multimedia. You know, it’s a real mystery to me who gets off work for Presidents’ Day and who doesn’t. Maybe Lisa Cullen can sort that out.
Anyway, I’m hereby declaring this Trivia Night. Here’s your question (maybe it’ll be something to discuss over dinner):
What is almost always the top-selling item in any grocery store?
Keep an eye out for the answer tomorrow. Or perhaps we’ll have some really smart comment posters get to it first.
UPDATE: Trivia night twofer! I will now reveal the correct answer on Wednesday, so if anyone else wants to take a guess, you've got extra time.
February 15, 2008 3:42
The everyman takes on the economically powerful
There's a new poll about the public's views on the U.S. economy out from the Pew Research Center for the People & the Press. They ask a lot of questions about economic problems facing the nation and who's at fault -- it's interesting, read it -- but one of the more surprising results comes from a question asking people which country they think is the world's leading economic power.
Here's how they answer:
The United States 41%China 30%
Japan 10%
The countries of the European Union 9%
Don't know 10%
China? 30% of people think China? Wow. I know China gets a lot of press and all, but still, it's a developing country. Consider this (thanks for the chart help, Feilding!):
Of course, there are a lot of ways to interpret "economic power." China does have quite a bit of weight to throw around when it comes to, say, commodities prices. Still, my intuition was telling me that 30% of people couldn't possibly put China at the top of the list for overall economic power.
So I called Pew up and asked what, exactly, they'd asked these people. Here's the question verbatim:
Today, which ONE of the following do you think is the world's leading economic power?The United States
China
Japan
The countries of the European Union
Now, I know the folks over at Pew are real pros -- the survey question they sent me mentioned that the order of the four options was randomized -- but, nonetheless, I felt somewhat vindicated. If people hadn't been given the option of China, they surely wouldn't have mentioned it so often, right?
I decided to go outside and talk to some people to test my theory. In my question, I simply asked which country is the world's leading economic power. No multiple choice. Here's what people had to say:
Yesterday, I gave you a cheat sheet about what was in the video. Today you actually have to watch (I'm really sorry about the ad -- I don't put that in there). Let's just say there's a reason the people at Pew do the polling, and I sit here and write about it.
February 15, 2008 11:59
Stan O'Neal shops the bargain bin
Justin is having a hard time being away from his blog, but you, dear readers, are the beneficiaries. He just radioed this in:
BREAKING NEWS! I just saw Stan O'Neal looking at the sale window at Frank Stella [Clothiers] on 58th before going into the New York Athletic Club next door!!!!!
That Stan O'Neal? Yes, that Stan O'Neal.
Still searching for Chuck Prince.
February 14, 2008 6:33
Barbara to the economy: Bring it
I was doing an interview for our annual What's Next issue this morning when Fed Chair Ben Bernanke went to the Hill to talk about the economy. I'm just now catching up with what he had to say. Lots of good thinking on how crappiness in the credit markets and write-downs at big banks have increased "the downside risks to growth." Here's the punchline:
At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt.
But he's not ruling out more rate cuts:
Although the baseline outlook envisions an improving picture, it is important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further. The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.
So, here's my question for all of you: Is anyone out there hoping for a recession?
I'm ready. I say let's do this thing and let's do it now.
Recessions are not-nice times. People lose their jobs. They don't get to buy a bunch of new stuff. I get that.
But I rent an apartment in Manhattan, and if there's ever any chance of being able to buy one, we're going to need a real hiccup in GDP. A lot more Wall Streeters are going to have to be fired.
In any economic situation there are winners and there are losers. Plenty of people profit during recession, and I hope to be one of them. A recession is going to happen eventually anyway -- hence the business cycle -- so why not sooner rather than later? I'm getting a little bored by all the will-she-or-won't-she theater, anyway.
February 14, 2008 3:30
How Canada is the answer to American indebtedness
Thanks, Justin! And what a warm welcome from That Anonymous Dude. I feel at home already. Though I do feel the need to point out that I know more about taxation in northern Europe than you have been led to believe. I once wrote an entire sentence on the topic.
So, today I'd like to talk about a story you've probably never heard anything about. Americans, it seems, have a little problem with debt. We do like our Humvees and big-plate dinners, don't we? And those credit card companies are so evil, aren't they, always pushing more borrowed money down our throats?
Well, as Stuart Vyse, a professor of psychology at Connecticut College, points out in his new book, Going Broke: Why Americans Can't Hold On To Their Money, those are both ways to look at the facts through a moral lens. Either business is to blame, or consumers are. When you instead look at the problem through a factual lens, neither explanation completely holds up.
Vyse has two really cool charts showing the number of personal bankruptcies in America over the past 65 years. This one supports the idea that consumers are spend-happy idiots, and that once it was easy to find a bankruptcy lawyer and file for Chapter 7 bankruptcy, completely wiping away debt, people went hog wild with the charge cards.
This chart tells the other story, the one that says credit card companies are predatory profit machines, and that once they had a way to charge sky-high interest rates they went hog wild with that, plowing poor, unknowing Americans under higher and higher piles of ultimately-unpayable debt.
Vyse turns to Canada to make sense of it all:
Since the sharp upturn in bankruptcies corresponds with the vertical lines in both graphs, we might be tempted to simply choose the story we like best and be done with it. But what if both versions are false? And if so, how could we figure it out?As it turns out, the answer is rather simple. A few studies have compared bankruptcy rates in Canada and the United States and found that the shapes of the two curves are remarkably similar. The Canadian bankruptcy rate turns upward in the late 1970s and, like the U.S. curve, rises at an increasing rate through the 1980s and 1990s. But neither of the events presumed to have created the epidemic in bankruptcies in the United States occurred in Canada. There was no change in the bankruptcy laws at that time that could explain the rise, and interest rates have been unregulated in Canada since 1886, making it possible for a lender to charge any rate the market will bear.
What's really going on, then? Vyse stopped by the old Lehman Brother II Time & Life building earlier today. I'll let him explain. (Thanks for the video help, Caitlin!)
For those of you working in cubicles without headphones, what he said was that the technology and innovation of modern life have created America's Great Indebtedness. Advances in banking and telecommunications and transportation simply make it too easy to get to the stuff we want to buy. The instantaneousness of ATMs and drive-thru windows and Internet shopping and handing your credit card number out over the phone make a huge number of our buying decisions too quick for our own good. How many of you fell for the hyperlink to buy Vyse's book on Amazon.com?
When we used to have time to think, we did. Alas, no more. Marketers and the proliferation of advertising have a role to play, sure, as do individuals who think they need to live in McMansions filled with stuff, but the very structure of society is the thing that lays the groundwork. All of which jibes with the fact that Americans aren’t the only ones who’ve been running up massive personal debt.
Vyse then has some ideas about what we can do, as individuals and as a country, to make things right. He's a psychologist so a lot of it comes from behavioral finance -- that glorious and oh-so-trendy intersection of economics and psychology. But I'll leave that for him to cover in the book.
February 13, 2008 4:50
The blogging will not stop
Thrilling news! I have lined up a sucker friend and colleague to take over for me for the rest of this week and all of next! Her name is Barbara Kiviat (you can read her recent Time articles here). She's younger than me and smarter than me and works harder than me, and, most importantly, she's a one-time recipient of a Johns Hopkins Provost's Undergraduate Research Award for a study titled "Suburbanizing Small Town, U.S.A.: The Meta-Myth of Salisbury, Md." (Just found that on the Google.)
It is true that, on the crucial subjects of Danish taxation and Dutch pop culture, Barbara's level of expertise is, shall we say, less than impressive. But don't be too hard on her for that.
She's planning to start Thursday. Enjoy!
February 13, 2008 11:09
Does long service on Capitol Hill kill your presidential chances?
I know, I know, I'm not a political blogger and I'm not supposed to be doing anything but working on my book this week. But I was thinking in the shower this morning (no kiddin') about whether long service on Capitol Hill, in particular in the Senate, is the kiss of death for a presidential candidate. The traits that make you a successful Senator--collegiality, willingness to compromise, great knowledge of the ways of Washington--don't necessarily look so great in a presidential candidate. Plus, if you've been in the Senate long enough you're sure to have changed your mind a few times over the years--giving your opponent fodder for some embarrassing attack ads.
The three remaining contenders this year are all U.S. Senators, but Hillary Clinton (8 years in the Senate) and Barack Obama (4) are total newbies compared with John McCain (22 years in the Senate, and before that 4 in the House). I knew off the top of my head that the last four presidential races all featured candidates with no Capitol Hill experience beating ones who had done time in the Senate or House (although Bush did of course lose the popular vote in 2000). But in the interest of book-procrastination I checked back on all the elections of the 20th century. Below are the races since 1900 that featured at least one Capitol Hill veteran:
2004 George Bush (never in House or Senate) defeats John Kerry (20 years in Senate)
2000 George Bush defeats Al Gore (8 years in Senate, 8 in House)
1996 Bill Clinton (never in House or Senate) defeats Bob Dole (28 years in Senate, 8 in House)
1992 Bill Clinton defeats George Bush (4 years in House)
1988 George Bush defeats Michael Dukakis (never in House or Senate)
1984 Ronald Reagan (never in House or Senate) defeats Walter Mondale (12 years in Senate)
1976 Jimmy Carter (never in House or Senate) defeats Gerald Ford (25 years in House)
1972 Richard Nixon (4 years in House, 2 in Senate) defeats George McGovern (9 years in Senate)
1968 Richard Nixon defeats Hubert Humphrey (16 years in Senate)
1964 Lyndon Johnson (12 years in Senate, 11 in House) defeats Barry Goldwater (12 years in Senate)
1960 John Kennedy (8 years in Senate, 6 in House) defeats Richard Nixon
1948 Harry Truman (10 years in Senate) defeats Thomas Dewey (never in House or Senate)
1924 Calvin Coolidge (never in House or Senate) defeats John Davis (2 years in House)
1920 Warren Harding (6 years in Senate) defeats James Cox (4 years in House)
1900 William McKinley (12 years in House) defeats William Jennings Bryan (4 years in House)
Not the most clear-cut of results, I admit. But it is apparent that, other than Johnson in 1964, no serious Capitol Hill long-timer (which McCain certainly is) has won the presidency in at least 108 years. Update: Oh, and Johnson was of course the incumbent.
February 13, 2008 7:36
Is it tacky real estate marketing or a harbinger of armed conflict to come?
See, I said there'd be pictures! "Pre-war," in New York real estate parlance, means anything built before the 1940s. This sign, in case you can't tell, adorns a hole in the ground. I assume that what the developers are trying to say is that the building they're putting up will look like the surrounding apartment houses, most of which date to the first couple decades of the last century. But maybe I'm assuming wrong.
February 12, 2008 9:56
The myth of the frequently posting blogger
I know, I know, I promised to make no more mention of The Myth of the Rational Market until I had finished the manuscript. But my failure to finish things up over the past few weeks has motivated me to take the rest of this week off to work on it. So apart from maybe a photo or two, or any cool discoveries I make while delving through the notes for my book, I won't be posting much this week. And then I'm going skiing next week. I may still try to line up a guest blogger (what are you up to, Gimein?), but no guarantees.
I do guarantee that, once the book is in, I'm going to think a bit harder than I've been doing about how to make this here blog an entertaining and useful place for readers. So if you've got any suggestions, leave them in the comments or email me: capitalist at timemagazine.com.
February 11, 2008 7:35
Capital One offers five horrendous ideas for spending borrowed money
This was part of a mailing full of blank checks that I got from credit card purveyor Capital One on Saturday. By my reckoning, only one of these proposed uses of credit ("Build a deck") is a genuine capital expenditure. Four more ("Have your house repainted," "Buy a new TV," "Join a gym," and maybe "Update your wardrobe") have some lasting value and thus aren't crazy. The rest are things that are entirely inappropriate to go into debt for: "Put some extra cash in your pocket," "Host a party," "Put a down payment on that convertible you've been eyeing," "Get courtside seats," "Take a vacation (you deserve it!)"
What Capital One is doing here is equivalent to Anheuser-Busch sending out mailings encouraging customers to drink till they puke. Funny thing, though: Anheuser-Busch doesn't send out mailings (or run ads) like that! If they did, they'd get into all sorts of trouble, both legally and in the court of public opinion.
Which makes me wonder. Why exactly is it that we don't subject financial advertising to the same level of scrutiny we give to ads for alcoholic beverages? It's not like the product is any less dangerous.
Update: In the comments and on his blog, Mike Moffatt makes the good point that the ads for state-sponsored lotteries are if anything even worse in this regard. Also, economists are beginning to look closely at what works and what doesn't in our regulation of alcoholic beverages. Duke's Phil Cook (co-author of the definitive economic examination of state lotteries) has a new book on the subject, Paying the Tab: The Costs and Benefits of Alcohol Control, an excerpt from which can be read in the January 2008 issue of the Milken Institute Review (sign-in required). There might be lessons there for how we ought to deal with overeager debt salesmen.