Derek Thompson

A short philosophical history of personal music

Adapted from flickr/Matthew Hickey

If you are reading this on a computer, there is an excellent chance that you are wearing, or within arm's reach of, a pair of headphones or earbuds.

To visit a modern office place is to walk into a room with a dozen songs playing simultaneously but to hear none of them. Up to half of younger workers listen to music on their headphones, and the vast majority thinks it makes us better at our jobs. In survey after survey, we report with confidence that music makes us happier, better at concentrating, and more productive.

The triumph of headphones is that they create, in a public space, an oasis of privacy

Science says we're full of it. Listening to music hurts our ability to recall other stimuli, and any pop song -- loud or soft -- reduces overall performance for both extraverts and introverts. A Taiwanese study linked music with lyrics to lower scores on concentration tests for college students, and other research have shown music with words scrambles our brains' verbal-processing skills. "As silence had the best overall performance it would still be advisable that people work in silence," one report dryly concluded.

If headphones are so bad for productivity, why do so many people at work have headphones?

There is an economic answer: The United States has moved from a farming/manufacturing economy to a service economy, and more jobs "demand higher levels of concentration, reflection and creativity." This leads to a logistical answer: With 70 percent of office workers in cubicles or open work spaces, it's more important to create one's own cocoon of sound. That brings us to a psychological answer: There is evidence that music relaxes our muscles, improves our mood, and can even moderately reduce blood pressure, heart rate, and anxiety. What music steals in acute concentration, it returns to us in the form of good vibes.

That brings us finally to our final cultural answer: Headphones give us absolute control over our audio-environment, allowing us to privatize our public spaces. This is an important development for dense office environments in a service economy. But it also represents nothing less than a fundamental shift in humans' basic relationship to music.

A SHORT HISTORY OF PRIVATE MUSIC

In 1910, the Radio Division of the U.S. Navy received a freak letter from Salt Lake City written in purple ink on blue-and-pink paper. Whoever opened the envelope probably wasn't expecting to read the next Thomas Edison. But the invention contained within represented the apotheosis of one of Edison's more famous, and incomplete, discoveries: the creation of sound from electrical signals.

The author of the violet-ink note, an eccentric Utah tinkerer named Nathaniel Baldwin, made an astonishing claim that he had built in his kitchen a new kind of headset that could amplify sound. The military asked for a sound test. They were blown away. Naval radio officers clamored for the "comfortable, efficient headset" on the brink of World War I. And so, the modern headphone was born.

The purpose of the headphone is to concentrate a quiet and private sound in the ear of the listener. This is a radical departure from music's social purpose in history. "Music together with dance co-evolved biologically and culturally to serve as a technology of social bonding," Nils L. Wallin and Björn Merker wrote in The Origins of Music. Songs don't leave behind fossils, but evidence of musical notation dates back to at least Sumeria. In 1995, archaeologists discovered a bone flute in southern Europe estimated to be 44,000 years old.

The 20th century did a number on music technology. Radio made music transmittable. Cars made music mobile. Speakers made music big, and silicon chips made music small. But headphones might represent the most important inflection point in music history.

If music evolved as a social glue for the species -- as a way to make groups and keep them together -- headphones allow music to be enjoyed friendlessly -- as a way to savor our privacy, in heightened solitude. In the 1950s, John C. Koss invented a set of stereo headphones "designed explicitly for personal music consumption," Virginia Heffernan reported for the New York Times. "In that decade, according to Keir Keightley, a professor of media studies at the University of Western Ontario, middle-class men began shutting out their families with giant headphones and hi-fi equipment." Headphones did for music what writing and literacy did for language. They made it private.

Library of Congress

ALONE, TOGETHER

Loneliness is one of the first things ordinary Americans spend their money achieving.

So wrote Stephen Marche in last month's cover story for The Atlantic. "Loneliness is at the American core, a by-product of a long-standing national appetite for independence," he said. "The price of self-determination and self-reliance has often been loneliness. Americans have always been willing to pay that price."

It is easy, and therefore popular, to say that headphones make us anti-social. But Marche is right. Wealth can buy -- and modern technology can deliver -- the independence that people have always sought. People have always had private thoughts. Headphones have the capacity to make our music like our thoughts. Something that nobody else can hear. Something we can choose to share.

Dr. Michael Bull, an expert on personal music devices from the University of Sussex, has repeatedly made the larger point that personal music devices change our relationship to public spaces. "People like to control their environment," he told Wired magazine, and "music is the most powerful medium for thought, mood and movement control."

Controlling our public environment is more important now that Americans have stopped moving away from density. Sunbelt suburbs today are languishing. Urban centers are thriving. "Today, the most valuable real estate lies in walkable urban locations," Christopher B. Leinberger reported in a new Brookings study last week. In a re-urbanized United States, the earbud is the new car stereo. "With the urban space, the more it's inhabited, the safer you feel," Bull says. "You feel safe if you can feel people there, but you don't want to interact with them."

Personal music creates a shield both for listeners and for those walking around us. Headphones make their own rules of etiquette. We assume that people wearing them are busy or oblivious, so now people wear them to appear busy or oblivious -- even without music. Wearing soundless headphones is now a common solution to productivity blocks. Baldwin's invention for the Navy has become a social accessory with a explicit message: I am here, but I am separate. In a wreck of people and activity, two plastic pieces connected by a wire create an aura of privacy.

SOUND AND WORK

We still haven't answered the first question I posed: If headphones are so bad for productivity, why do so many people work with headphones?

It's not just that headphones carve privacy out of public spaces. It is also that music causes us to relax and reflect and pause. The outcome of relaxation, reflection, and pausing won't be captured in minute-to-minute productivity metrics. In moments of extreme focus, our attention beams outward, toward the problem, rather than inward, toward the insights."When our minds are at ease -- when those alpha waves are rippling through the brain -- we're more likely to direct the spotlight of attention inward," Jonah Lehrer wrote in Imagine.  "The answers have been there all along. We just weren't listening."

In a crowded world, real estate is the ultimate scarce resource, and a headphone is a small invisible fence around our minds -- making space, creating separation, helping us listen to ourselves.

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Greece is the hardest-working country in the EU! According to Greece. And only Greece.

According to Britain, Germany, Spain, Poland, and the Czech Republic, it's the laziest country in Europe.

Meanwhile, Germany is the most respected EU country, according to the Pew Global report, European Unity on the Rocks. And Greece appears to be living in a bizarro universe where 78% of its respondents held negative views of Germany. Three in five Greeks said their country had Europe's hardest working citizens. Half of the rest of the respondents from the other seven nations said Greece had the laziest workforce in Europe.

This chart is somewhat hilarious, and also somewhat tragic, but it needn't be damning. Stereotypes exist is fully functioning monetary unions, too! Take, for example, the monetary union I live in. As everybody in New York knows, New Jersey has more tan lines than working neurons. As everybody in New Jersey knows, New Yorkers are smarmy soulless jerks. And, as everybody in New York and New Jersey can agree, Mississippi is full of illiterate bumpkins, who are probably all racist.

Europe's problem isn't stereotypes. It's institutions. Or, more accurately, it's the continent's dearth of working, supranational institutions that can transcend international stereotypes and politics. In the U.S., we don't debate "permanent bailouts" to poor people in Mississippi and New York, no matter how racist or smarmy they are. We just keep sending them money because modern Medicaid is an established institution that is bigger than the month-to-month political squabbles and stereotypes that can bog down decision-making at the federal level (note to future readers: This sentence's veracity might have changed somewhat under a Romney/Ryan administration). Europe's stereotypes aren't good. But they wouldn't put the European Union at risk unless the institutional bedrock of that Union was flawed to begin with. And it is. Oh, how it is.

So says Bloomberg, after matching the biggest tech IPO of all time against its rivals from the last ten years. Here's the proof:

This is an interesting and superlative fact about Facebook, which is an interesting and superlative company with an interesting and superlative IPO. That makes it news. But it doesn't make it indicative of anything about Facebook except that the IPO price turned out to be high.

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Facebook's IPO flop is a fascinating story. But in the long-run, the last seven days are probably irrelevant to the success of the company, which depends on whether Facebook builds a business model that does not exist right now. Our valuation source Espen Robak put it perfectly last week: "If Facebook's profit model stays the same, this [stock price] doesn't make any sense."

The fact that Facebook is still trading at 60-times its earnings (for perspective: Google trades closer to 15) suggests the market consensus is that Facebook's profit model will change. But how? I've spoken with a few people from the social media world who say the company is such an essential component of the Web architecture and our online experience that it could simply start bullying consumers into paying -- e.g.: $1 for each human to access the site and $100 per company to use "like" buttons. Facebook has 900 million users. If each paid a dollar this year, that would nearly equal last year's profit.

Okay, so those aren't so much business ideas as illustrations of the kind of power we're meant to believe Facebook has. (They are, in fact, horrible ideas. Can you imagine the popular uproar if Facebook announced that it would charge subscriptions? Or the freak-out on Wall Street that Facebook was so desperate to show it could make money it was actually thinking about a social media pay-wall? Disastrous.) But this might be a more reasonable illustration: Companies, investors, and individuals using Facebook's ginormous pool of social information to make investment decisions:

Using status updates from U.S. users, Facebook's data team has constructed a daily measure of America's mood--an index of gross national happiness. There is a long literature on how people's mood affects the market (yes, sunnier days in New York City are better for stocks), so Yigitcan Karabulut, a graduate student at Goethe University Frankfurt, decided to examine the link between Facebook's GNH index and share prices.

What Mr. Karabulut found was that GNH didn't seem to merely move up and down with the stock market, but to predict it: A bump up in people's sentiment one day tends to lead to a statistically significant increase in returns the following day.

Today, Facebook makes more than 90 percent of its revenue from online ads and Zynga games. It's conceivable that, as online ad revenue might never quadruple on a per-user basis, Facebook builds a big-data platform that skims aggregated information off its user base and sells the results as a financial service. That's a vision of Facebook, big-data service provider. I don't know if it makes any sense. But it's a vision.

Last Friday, I spoke with Espen Robak, the president of Pluris Valuation Advisors and an expert on valuing large private companies, just minutes before Facebook's stock was scheduled to trade publicly for the first time ever.

You know what happened next: Glitch, snitch, and flop went the IPO. What the heck happened? I caught up with Robak for the post-mortem of the public offering. Here's an edited transcript:

Well, that was disappointing. Has the Facebook IPO fallout shocked you?

I wouldn't say I'm terribly surprised. This was always an uncertain valuation and an uncertain investment. And the stock price hasn't really moved that much, when you think about how much of a crap-shoot this valuation was going to be. That would be my take.

That's a pretty calm reaction for the biggest tech IPO of all time falling 25 percent from its opening price!

Well, obviously, most people were assuming that Morgan Stanley and Facebook would have managed the IPO price to produce much more of a pop for it to continue trading up. But this is not easy to guess. You look at what happened to LinkedIn, which popped more than 100%, and that was clearly a substantial undervaluation.

You said Friday that private Facebook stock was trading in the low 40s in the secondary market, and that those investors probably expected the stock to be in the low-50s in six months. Explain that again to me.

When you buy something that you know is going to be illiquid -- and these people couldn't trade Facebook stock for 180 days after the IPO -- you want to give it a little bit of a haircut. The people who bought private Facebook stock in the 40s  were buying illiquid stock. They thought the so-called "fully liquid" version would be worth significantly more. That would take you into the low 50s. But actually, the price of privately traded Facebook shares went a little down before the IPO.

But by and large, most of the transactions in April were in the low 40s. So, yes, you would expect that these investors were unpleasantly surprised.

I'm reading some very smart economic writers who're blasting Facebook and the banks for letting big institutional traders gobble up all the value in Facebook, then setting the IPO price too high, and then screwing over retail investors who bought stock at $42 at the opening and immediately saw their investment fall by 25%.

But after LinkedIn's IPO, I read some very smart economic writers who blasted the banks for setting the IPO price too low and for screwing over the entrepreneurs. 

I'm really happy you said that, because I've had the same idea. This is an interesting thought experiment. What if Facebook had popped. What if Facebook debuted at $15 and popped to $35? Nobody would be complaining about the forecasts, or the Nasdaq glitch, the various things that went on. The CFO of Facebook, the analysts at Morgan Stanley, the tech guys at Nasdaq -- none of them would be in hot water now. So it reemphasizes for me that the IPO process is a somewhat delicate undertaking for everybody: for the company, for the underwriters, for everybody involved. Ideally you want to be right, but it pays to be low.

What do you think about the current accusations that Facebook leaked information to their underwriters, who shared it exclusively with big investors?

I have no idea. It's really not my place to say.

Is it fair to say we were all too optimistic a week ago?

I think people might have been over-excited about it, yes. It's not easy to price private companies since so much of the value is dependent on things that are going to happen in a year. The very nature of a company like this is highly speculative.

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The triumph of women in the American office place has been perhaps the greatest economic story of the last century. In 1900, only 19 percent of women participated in the labor force. In 112 years, that number has tripled, and just a few years ago, there were more officially employed women than men in the United States.

But the rise of working women has been much slower around the world. Here's a graph, via the International Labor Organization, comparing the gap between youth male and female participation rates around the world in 1991, 2001, and 2011. Worldwide, the gap has barely budged. In South Asia, it's still terribly high. In East Asia, the gap is totally inverted: women are officially working more than men.

What's going on here?

Sometimes the biases behind these gaps are purely institutional. In Sudan, for example, women still lack access to bank accounts, and in Yemen, it is illegal for women to leave the home "without permission from a male family member or an escort," according to the Economist Intelligence Unit.

In some cases, the gap is cultural. The women don't expect to work because their mothers didn't work, or because the national values don't emphasize employment as a "female" virtue. In Pakistan, for example, male participation rates are among the highest in the world, but less than "one out of five young Pakistani women participates in labor markets, which primarily seems to reflect cultural barriers to female labor force participation."

But some of the most interesting barriers are economic. In underdeveloped economies with large informal sectors (such as families selling their wares at bazaars), a strong economy ironically pushes women out of the workforce because the men find that their income alone can support the family. (Studies of countries in South Asia have often found that when household income goes up, female participation goes down, according to the ILO.) The introduction of a manufacturing sector -- an essential part of any country's industrialization -- overwhelmingly benefits men, opening up a wider gap between male and female employment and earnings.

As a result, female participation rates don't rise in a straight diagonal line like we tend to see in most positive trends. Instead, it follows a funky U-shaped pattern, with high female participation rates in many struggling countries, low participation rates as manufacturing transforms the economy, and higher participation rates as the service sector develops. This helps to explain why extremely strong economic growth in South Asia has done little to reduce gender gaps, even though the gap has declined relatively strongly in the slower-growing Middle East.

Growth is a requirement for the betterment of women's (and men's) lives everywhere. But the international road to equality through growth is loopy.

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New studies -- including a report on the happiest countries on the planet -- suggest that building a theory of "happynomics" is harder than you'd think


Economists can measure unemployment, GDP growth, and housing prices. But do they know how to measure happiness? If they did, what would we even do with the results?

Each year, the OECD produces the Better Life Index, a comprehensive report on the well-being of advanced countries based on a long list of factors, including income, housing, and life satisfaction. In the 2012 survey released this week, Australia took the top spot. The U.S. finished third.

Does that mean Australia is objectively the best place to live in the world? Absolutely not. Even the architects of the index would tell you that the "good life" is utterly subjective, and different people have different values. If you equally measure income and work-life balance (two real metrics in the OECD study), you assume that everybody in the world values money and down-time the same. In the real world, some people like smaller houses, some prefer long vacations, and some choose to work in banking because they like having money and don't care for down-time.

The nice thing about the Better Life Index is that it lets users weight the 11 metrics to emphasize the values that matter most to you. When I emphasized income, housing (e.g.: rooms/person and dwelling size), and jobs (e.g.: employment, long-term unemployment), the United States came out way ahead. From these metrics alone, we really might be number one.
 

But when I lowered those metrics and instead emphasized community (via surveys on quality of support network), life satisfaction (via surveys) and work-life balance (e.g.: time devoted to leisure), Denmark moved from number 15 in the world to the runaway winner. The United States fell from number one to number 18. Only Switzerland and the Netherlands hung around in the top five. Australia, the overall winner, didn't even appear in the top seven in either list.


The OECD's metrics are not inscribed by the Almighty on stone tablets. They're just educated guesses about what makes for strong communities a decent environment and so on. But they help to tell an important story: If you want to measure what makes people satisfied, you have to understand what they value. And that is really, really hard work.

DOES HAPPY-ECONOMICS SKEW LIBERAL OR CONSERVATIVE?

The most commonly cited statistic in happiness economics is the rule that somewhere between $40,000 and $110,000, a higher salary doesn't buy much more joy or satisfaction. Many people draw the bright white line at $70,000. This provides a strong utilitarian impulse to raise taxes on the rich, who apparently can't buy much happiness with their extra millions, and to funnel the money to the poor to bring them closer to $70,000.

But that's an awfully blunt instrument for maximizing happiness. But one reason why incomes differ is that some people care more about making money than others.

Take, for example, two equally capable students graduating from the University of Michigan. Student A goes into Acting, because he likes the stage and doesn't mind being poor. Student B goes into Banking, because he likes money and he doesn't mind working 100 hours a week. The federal income tax code will implicitly punish Student B's decision with higher rates and reward Student A with maybe even a net tax credit, even though Student A didn't care about money in the first place. If you nationalize this lesson, it suggests that, in our imprecise efforts to funnel money from the top to the middle, we wind up taking money from people who care overwhelmingly about having a high income and distribute it among people who don't.

"Differences in preferences, not merely ability, play a role in driving the variation in income across individuals," Benjamin Lockwood Matthew Weinzierl write in a fascinating 2012 paper. Some people are rich because they really want to be.

The psychological research backs up the economic wonkery. Here's the great Daniel Kahneman on how kids who want to be rich are more likely to be rich and more likely to be happy about being rich:

[In] a large-scale study of the impact of higher education... young people filled out a questionnaire in which they rated the goal of "being very well-off financially" on a 4-point scale ranging from "not important" to "essential."...

Goals make a large difference. Nineteen years after they stated their financial aspirations, many of the people who wanted a high income had achieved it. Among the 597 physicians and other medical professionals in the sample, for example, each additional point on the money-importance scale was associated with an increment of over $14,000 of job income in 1995 dollars!

The importance that people attached to income at age 18 also anticipated their satisfaction with their income as adults ... The people who wanted money and got it were significantly more satisfied than average; those who wanted money and didn't get it were significantly more dissatisfied.

This might put an arrow in the quiver of those who don't find income inequality much of a tragedy. To a large extent, lower-income people might just be "racing for other finish lines," Bryan Caplan concludes. Maybe Caplan's right, and maybe he's wrong. I doubt either of us knows enough about the preferences of low-income Americans (or any-income Americans) to say for sure what finish lines they're racing for.

The safe conclusion to draw is that good arguments on behalf of income redistribution are complicated by the fact that not all people value income the same way -- just like not all people value community, the environment, and housing size the same way. Happiness is a cake with a million recipes. The same factors that make it so hard for the OECD Better Life Index to compare the "good life" country-by-country make it hard to devise any sort of happiness-centric public policy.

The biggest tech IPO in history is turning into a giant metaphor of greed and hyper-optimism, as bankers and analysts struggle to figure out what went wrong and who to blame.

It wasn't bad enough for Facebook to see its stock cascade by 18% -- or seven points -- since its delayed and disappointing Friday IPO. No, the real story lurks behind the numbers: the disastrous performance of the overwhelmed stock exchange and new rumors that Facebook might have broken the law before its first minute as a public company by leaking exclusive news about its earnings to large banks, who then went ahead and told big investors to sell Facebook at the opening.

First, the glitch. Technical issues with Nasdaq's trading systems delayed the Facebook IPO by two hours. Big deal? Sure is, Nicholas Carlson reported in an exclusive interview with a hedge funder at Business Insider. Nasdaq's slip-up, and its response to traders Monday morning, could have driven the stock down by encouraging big investors to sell. Money quote: "NASDAQ knew its systems were broken before the Facebook IPO, and instead of aborting the offering and facing huge embarrassment, it went ahead. Traders then lost hundreds of millions of dollars as they tried to buy and sell Facebook stock without getting confirmation that their trades had been executed."

Even after Friday's mayhem and Monday's fog, the stock continued to fall through Tuesday. So you can't blame glitches for all of Facebook's slide ... which could always rebound by, say, tomorrow. Stocks do that.

This brings us to the snitch. Here's what we think we know so far, based on reporting by the New York Times, Reuters, and Business Insider.

In the run-up to Friday's IPO, Morgan Stanley's lead consumer Internet analyst cut revenue forecasts for the company. JPMorgan Chase and Goldman Sachs, two other major underwriters, followed. That takes us one step closer to solving the mystery of Facebook's falling stock price: Three huge banks changed their mind about Facebook's immediate future and told institutional investors to back off the stock around $40.

The logical follow-up question is why did all three lead underwriters take the extraordinary step --  one mutual funder: "I've never seen that before in 10 years" -- of cutting their Facebook forecast? One clue might be in Facebook's S-1, which it updated on May 9 (9 days before the IPO).

Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of DAUs increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions. [my emphasis]

That first sentence is troublesome. Really simply, it says that users are still rising faster than ad revenue, because Facebook is still struggling to figure out how to make money off its contintent-sized audience. But is the sentence really so shocking that the banks would take the nearly unprecedented step of spooking their investors days before an IPO that they were underwriting? Perhaps not.

That's where the snitch theory comes in. Henry Blodget reports that analysts cut their estimates because Facebook told them to -- exclusively. (Not illegal, perhaps. But not cool, either.) "Put differently, the company basically pre-announced that its second quarter would fall short of analysts' estimates. But it only told the underwriter analysts ... not to smaller investors," Blodget writes. Whether it's illegal, extralegal, or just grossly unfair to average investors, we'll let the SEC decide.

The unfairness principle doesn't begin and end with the snitch, John Cassidy argues. It begins with the secondary market, where big investors gobbled up bits of Facebook for cheap and watched their shares bloom before the company went public. Since Friday, the stock has traded sideways, and then down.

The big idea here is that companies are staying private longer, which allows them to soak up up millions and for the market value to top out, leaving little on the table for average investors.* So-called "D-rounds" of late-stage stock offerings are now common for tech companies who'd like the benefits of wide-scale funding without the drawbacks of public disclosure rules. "More to the point," Cassidy says, "they allow hot companies to bid up the price of their stocks well before the investing public gets a sniff." By the time the public gets a sniff, the smart money has already cashed out.

THE LONG GAME

Keep your eye on the bigger picture. Facebook's $100 billion valuation was never about its first-hour pop or its second-quarter earnings. The valuation reflected a belief about the future -- by definition, not reflected in today's numbers -- that the biggest Internet company, as measured by attention, simply had to become the biggest Internet company, as measured by market cap.

"When you're trading at massive multiples, any hint of a slowdown in growth, or of failing to meet pretty aggressive targets, is a key sell signal," Felix Salmon writes. Too true. But, as I'm sure Felix would agree, the implicit assumption behind Facebook's $100 billion valuation was that Mark Zuckerberg, boy-king and chancellor of the social universe, could transcend the drudgery of banner ads-per-user. Facebook is deeper, wider, more media-pervasive, and life-insinuating than every social media company put together. How does that sort of company not become the next Google?! ... is the kind of rhetorical question buyers were asking themselves.

"If Facebook's profit model stays the same, this valuation doesn't make any sense," Espen Robak, the president of Pluris Valuation Advisors, told me on Friday morning, just minutes before Facebook traded publicly for the first time. In one or ten years, Facebook won't be judged by Nasdaq's glitches, or its executives' alleged snitches. It will be judged by the degree to which Zuckerberg meets the historic burden of expectations placed on his company's shoulders.  Hiccups or no hiccups, this was always a bet on something not unlike magic.

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*On the other hand! When LinkedIn's stock popped 100% after its IPO last year, critics blasted the banks for setting that IPO price not too high, but TOO LOW, thus screwing the entrepreneurs out of tens of millions in shares that only blossomed after LinkedIn sold them. This is a good time to reiterate that stocks are bets; analysts are notoriously hyperbolic; and whether an IPO flat-lines or goes to infinity, you can be sure that somebody is allegedly getting a raw deal.

Happy-ish news: Gallup's Economic Confidence Index broke through the glass ceiling of negative-17 for the first time in its four-year history of daily tracking.

The index can go as high as 100, if all respondents say the economy is strong and improving, or as low as negative-100, if everybody says things are bad and getting worse. Its lowest-ever score was 65 below zero, back in late 2008. Its highest ever came this this morning.

Today, 52% of Americans think things are getting worse, and only 15% describe conditions as "excellent" or "good." Ladies and gentlemen: all-time record economic optimism.

"The pursuit of efficiency has long been a hallmark of American economic success," Daniel Gross writes in his great new book Better, Stronger, Faster. And he's right. Some of the great triumphs of American wealth, from the Model T to Amazon shopping, are triumphs of an important kind of efficiency: using technology to do more with less.

For much of the last century, efficiency has been the providence of producers. Companies big and small found innovative solutions to complex problems and cut costs to labor, energy, and global supply chains. But lately, ordinary families are evening the score. We're learning to share more (e.g.: cars), buy less (e.g.: movies and music for the house), and live cheaper. Here, Gross and I discuss the future of the efficient consumer.

THOMPSON: For 30 years, corporations dominated the efficiency game via off-shoring and automating. Now consumers are getting in the game by replacing old products with cheap tech or by sharing goods. What changed?

GROSS: Several things changed, and I definitely trace it back to the onset of the Great Recession. If your top line isn't growing, and your net worth is tumbling, and your ability to borrow against your home equity disappears, you have to start figuring out how to do more with less. So the movement toward consumer efficiency was spurred by necessity. The old personal finance advice - stop buying that latte at Starbuck's and start making coffee at home - actually makes a lot of sense. But the nice thing is that new businesses arose to appeal to the new zeitgeist - Netflix allowing for the rental of movies instead of the purchase, Zipcar, Rent-the-Runway, or Chegg.com, which allows students to rent textbooks online. All of these let people get the same utility without having to go into debt to purchase and take ownership of things.

But standards also make a very big difference. The typical car sold today is significantly more fuel efficient than the typical car sold five years ago. And I'm not just talking about luxury goods like the Prius. I'm talking about entry-level vehicles like the Chevy Cruze. Yes, automakers have responded to persistently high gas prices by working on fuel efficiency. But the higher mileage standards promulgated by the Obama administration lit a fire under the carmakers. In the same way, standards for more efficient light bulbs and appliances wind up helping consumers reduce their operating costs, and boost their operating income. Imagine how much better off (and efficient) the typical American homeowner would be if building codes mandated greater use of more effective insulation.

THOMPSON: Do you think the new consumer efficiency revolution could stem from income inequality -- that our wages are falling behind productivity, so we're using technology to make our money go further?

GROSS: There's something to your point. I'd put Groupon and LivingSocial in the bucket of efficient consumer businesses, and there's no question they've caught on because people need to make their dollars go much further. But of course we've always used technology to make our money go further, regardless of where we are in the economic cycle and what's happening with income inequality. I'm old enough to remember what long-distance phone calls used to cost before MCI came on the scene. Now I use Skype, not because my income has gone down, but because it's cool to get stuff for free and I like being able to see the person at the other end of the call. And in many ways, I think it actually think that it works the other way around.

To a large degree, efficient consumption starts as a luxury good and then trickles down to the rest of consumers. There are a few reasons for that. At the beginning, efficient consumption products - the Prius, solar panels, programmable thermostats, LEDs - are niche products and so have a hard time competing on price with mass-manufactured equivalents that have been around for decades. They're artisanal by comparison. Now think about housing. It's more efficient - and ultimately reduces your operating costs - if you can live close to a train or light-rail station, so you don't have to own a car to get around. But we all know that homes and developments close to transit tend to be more expensive than those that are farther away. In Connecticut and New Jersey, real estate in towns that have direct train connections to New York, tends to cost significantly more than houses in nearby towns that don't have them.

THOMPSON: Family consumption makes up a huge part of GDP. Are efficient consumers bad for the economy? Won't we all be poorer if we buy fewer cars, houses, and clothes?

GROSS: No, I don't think that efficient consumers are bad for the economy, any more than efficient companies are bad for the economy. The great problem we've had in the last several years - and we continue to suffer the after-effects - is that millions of our citizens couldn't afford to meet their financial commitments. The inability of people to keep up with mortgages, credit card loans, and other consumer loans has had disastrous consequences for our financial system, for companies, and for the economy at large. Financial failure begets financial failure. Just so, financial success begets financial success. If we buy 500,000 fewer cars, then a bunch of autoworkers and car dealers will suffer. But if 500,000 people are freeing up the $6,000 a year they would have spent on car payments, taxes, and insurance, and using the proceeds to, say, avoid foreclosure, or stay current on payments, or invest in their own education - that's a significant positive.

There was a great story in the New York Times about a small heating oil company in Maine whose poor clients were suffering horribly, and the difficult choices the owner had to make about whether to deliver fuel to people who couldn't pay. People around the country send in tens of thousands of dollars to help out. The money all went to pay for heating oil. Imagine if the money -and all the public aid those customers had received - went to weatherize leaky trailers and do things that would enable them to reduce their annual fuel consumption by 20 or 30 percent. Next winter, they'd all have much more to spend at local businesses, the heating oil company owner would have a more sustainable business and wouldn't face the same number of wrenching decisions.

THOMPSON: Do you see efficient consumption playing into the export game? If we save more like Germans, will it help us export more like Germans?

GROSS: I don't think so. We're actually quite good at exporting. Monthly exports have risen from $124 billion in April 2009 to a record $186 billion in April 2012 -- up 50 percent. Our 2011 exports were $2.1 trillion -- also a record. The opportunity is really more in how efficient consumption can create new businesses that can then be exported. In other words, if a Zipcar can catch on and gain scale in the U.S., it can quickly expand abroad. Groupon and Living Social are now in dozens of countries. In countries where energy is more expensive, energy-saving products -- like, say, the Nest thermostat -- have the ability to catch on.

THOMPSON: Is consumer efficiency a fad? Is the natural state of the American human to borrow and spend, and we're only "pretending" to like efficiency because we're temporarily overloaded with old debt and flat-lining wages?

GROSS: I definitely think it is cyclical. I've reported through three different recessions. And I"ve either written - or read - the same article about how we've learned our lesson, how a nation of spendthrifts is turning into a nation of penny-pinchers and coupon-clippers. Then once growth returns and credit flows, the coupon circulars go straight into the garbage. There are two factors that may lead efficient consumption to last longer this time around. First, if you read your Reinhart and Rogoff, you'll know that recoveries from debt-induced crises tend to be slow and painful. There will be no return to boom times. People will be working out from under their debt load for a long time. Mortgage equity withdrawal [MEW] - i.e. borrowing against your house to go to the Olive Garden - was a huge factor in spurring consumer spending in the 00s. But given where housing is now, there's not likely to be any MEW for years to come. So consumers will have to live by their wits for the next many years.

The second factor is the proliferation of efficient consumer businesses. There are just many more of them, and many more marketers, executives and lobbyists sitting around thinking of ads, financing mechanisms, subsidies, incentives and business models that will rope people in. The best way to get people to save money on vital goods and services is to create businesses that will profit by helping them do so. If I came and changed all the light bulbs in your house and reprogrammed your thermostat, wouldn't you pay me 20 percentage of your annual savings?

More »

To help make sense of the Facebook IPO, we caught up with Steve Blank, a professor at Berkeley and Stanford and serial entrepreneur from Silicon Valley. This conversation has been edited and condensed.

THOMPSON: What does the Facebook IPO mean for Silicon Valley?

BLANK: I think it's the beginning of the end of the valley as we know it. Silicon Valley historically would invest in science, and technology, and, you know, actual silicon. If you were a good VC you could make $100 million. Now there's a new pattern created by two big ideas. First, for the first time ever, you have computer devices, mobile and tablet especially, in the hands of billions of people. Second is that we are moving all the social needs that we used to do face-to-face, and we're doing them on a computer.

And this trend has just begun. If you think Facebook is the end, ask MySpace. Art, entertainment, everything you can imagine in life is moving to computers. Companies like Facebook for the first time can get total markets approaching the entire population.

THOMPSON: That all sounds pretty good for Facebook, actually.

BLANK: For Facebook, it's spectacular. But Silicon Valley is screwed as we know it. 

If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years,  at best, whereas social media will go big in two years, what do you think I'm going to pick? If you're a VC firm, you're tossing out your life science division. All of that stuff is hard and the returns take forever. Look at social media. It's not hard, because of the two forces I just described, and the returns are quick.

THOMPSON: Half the tech and innovation world seems to think this is just evidence that we're in the middle of a dot-com remix. You disagree?

BLANK: In the last bubble, venture capitalists went into a frenzy if anything had an ear and eye. I don't think this a bubble. I think the valuations are a bit of a bubble, but social media is real.

THOMPSON: Is Facebook worth $100 billion?

BLANK: In the last bubble there were no customers. Facebook makes $4 per user. The users are customers. They produce real revenue. Nobody's debating whether Facebook can make money. They're debating how much more valuable Facebook's hundreds of millions of users can be, and how fast can they can grow that value. That's an execution problem.

THOMPSON: But you think Silicon Valley is screwed, whether Facebook lives up to that valuation or not. Why?

BLANK: I teach science and engineering. I see my students trying to commercialize really hard stuff. But the VCs are only going to be interested in chasing the billions on their smart phones. Thank God we have small business research grants from the federal government, otherwise the Chinese would just grab them.

THOMPSON: But there are some people doing interesting, daring things, like Vinod Khosla.

BLANK: He is. But think about this. The four most interesting projects in the last five years are Tesla, SpaceX, Google Driving, and Google Goggles. That is one individual, Elon Musk, and one company, Google, doing all four things that are truly Silicon Valley-class disruptive.

THOMPSON: Does this represent a large-scale failure among venture capitalists in the Valley?

BLANK: It's not like anybody is doing evil or bad. It's like what Willie Sutton said: Social media is just "where the money is."

THOMPSON: What's the fix?

BLANK: I don't know what the fix is. Thank God for federal government grants, and the NIH, and Musk, and Google.

THOMPSON: So is American innovation simply doomed, or is it more complicated than that?

BLANK: The headline for me here is that Facebook's success has the unintended consequence of leading to the demise of Silicon Valley as a place where investors take big risks on advanced science and tech that helps the world. The golden age of Silicon valley is over and we're dancing on its grave. On the other hand, Facebook is a great company. I feel bittersweet.

The most highly anticipated IPO in history didn't put on much of a show. As I type these words, Facebook is currently trading within decimal points of its initial price of $38. Even so, the company's market cap is higher than McDonald's or Pepsico.

Espen Robak is the president of Pluris Valuation Advisors, where he studies and values private companies trading on the secondary market. I talked to him this morning just as Facebook trading began. This conversation has been edited.

THOMPSON: Let's cut to the chase. Are the people buying Facebook today idiots?

ROBAK: It's funny, Henry Blodget made the point earlier today that companies aren't going to go public anymore until they're ready to trade sideways. We shouldn't expect to see a huge pop. But Facebook is a really rare investment. Is it perhaps the biggest internet property in the world? Yes. Is it a big risk? Yes.

If you want a stable mature tech company at a reasonable valuation, you should buy Apple or Google. If you want a brand new start up, you should chase some flavor of the month, a lot of which are on the secondary market. If want something that's going to have explosive growth, you should have invested in Facebook a long time ago. [Note: For the moment, Robak is prescient. He made this comment before Facebook's IPO was flat.]

THOMPSON: A day is just a day. How high will Facebook go in the next few months?

ROBAK: The people who bought in the secondary market came in right around $44. Those shares are locked for 180 days. So you've got to think those people thought the shares were worth in the $50s and $60s at least.

THOMPSON: So why was the IPO priced at $38?

ROBAK: The $38 figure is made up. It represents a managed number designed to pop a little, but not too much. But you saw LinkedIn. They priced at $45. Their last trades on the secondary market were around $35. They popped to $100, and they're still trading around there.

THOMPSON: To be priced in the $50s or $60s would mean Facebook is worth nearly $200 billion. That's not just McDonald's territory. That's Google territory. How on earth can a company with only $1 billion in annual earnings be worth as much as Google?

ROBAK:It might seem insane. But it's not insane if you think about the reach of the company as a web property. From that standard, it's already bigger than Google. Nobody knows what Facebook's revenue and profit model is going to be. If their revenue and profit model stays the same, this valuation doesn't make any sense. There's no way they can just squeeze enough plain old ad revenue to justify these numbers. They must change. We don't know what this is going to look.

THOMPSON: I find that a remarkable statement: "If their revenue and profit model stays the same, this valuation doesn't make any sense."It means investors are spending millions of dollars in the hope that Zuckerberg will pull a rabbit out of his hat.

ROBAK: Think of it this way.. Google has a pretty standard price-earnings ratio right now -- around 15 to 20. That's where Facebook will ultimately have to get. They need vastly larger profit. How many more ads can they sell? Four times more in the next year? I don't think so. They have to get revenues from somewhere else.

THOMPSON: Where will Facebook get that money?

ROBAK:I think the media has gotten this part right. All the data that Facebook is gathering about us will become valuable at some point. Right now, Google can charge so much more for their advertising because they know what you're searching for, what you want to click. Facebook can take all of this stuff you write about and turn it into metrics about what you want to buy. I can't tell you how, but I think that's the idea.

Facebook raised $16 billion in its initial public offering Thursday, valuing the company at $104 billion. Trading throughout Friday could increase that figure significantly. Facebook's market cap is already larger than Amazon.com, Visa, and McDonald's.

If the stock pops just 30%, Facebook's market cap will eclipse JP Morgan, making it more valuable than any bank in the United States. 

The graph below compares Facebook, in red, to about 30 of the most valuable companies in America. We will be updating this graph throughout the day.

The link to Facebook's live stock is here. The IPO was at $38.

Click to expand (last updated: 11:55am EST):

Will Facebook's business model be more like Google, the New York Times, or TV? To be worth $100+ billion, it will have to be something much more.

Is Facebook's IPO the next chapter in the greatest company of our time, or are Friday's buyers total suckers?

The only intelligent, honest, and true thing to say about this inevitable question is that nobody has any clue. In 1992, a company called America Online had a $70 million valuation after its IPO. A decade later, it was worth $150 billion. A decade after that peak, it is now worth only $1 billion. Online fortunes are built on hyper-active tectonic plates. Mountains of wealth accumulate from flat nothingness, rumble, push up toward the sky, and with alarming frequency, blow themselves up. The Internet is a super-seismic place.

The AOL of the 1990s and the Facebook of today are both penumbral Internet companies. Both permeated our lives in intimate ways. Both changed the way we interact with friends, receive information, and spend our time. Whereas AOL lived off subscriptions, and was vulnerable to competitors who offered Internet access for free, Facebook's currency is simply attention. Its competitors are, essentially, any company that can distract us more effectively.

Facebook's greatest asset is its immense capacity to distract us. The best social media companies manage to get 10% of their users to come back each day, according to Foursquare/Tumblr/Twitter/Zynga investor Fred Wilson. Ten percent isn't cool, Facebook contends. You know what's cool? Fifty percent. "The majority of Facebook users stay active and their daily active user numbers are more than half their monthly numbers," Jonah Peretti says, "meaning the majority of people login each day. It is freakin' crazy."

It is freakin' crazy. If Facebook were merely the widest social network by number of users, dayenu. If it were the deepest social network by the quality of engagement and the quantity of personal detail, dayenu. But it's the widest and the deepest! That sort of thing has to be worth $100 billion, right?

Right?

THE CASE AGAINST FACEBOOK

In 1995, two students launched a website called TheGlobe.com from their Cornell dorm rooms. It resembled a proto-Facebook, letting users create personal pages with a place for pictures and writing. It had members (2 million) and a business plan (sell ads).  The day of its IPO, TheGlobe.com's stock price sextupled -- a record pop for its time -- and approached $100. Where is it today? Exactly.

This calls for some context. TheGlobe.com's population was nearly the size of New Mexico and couldn't make money. Facebook's is nearly the size of India and it just made a billion dollars. Still, the New Yorker's John Cassidy calls Facebook "the ultimate dot-com," and he doesn't mean it as a compliment. To him, Mark Zuckerberg's juggernaut is TheGlobe.com on gorilla steroids. It has members (125 billion "friends"), engagement (300 million daily photo uploads), and a business plan (sell ads). But for a $100 billion valuation to make sense, Cassidy calculates that Facebook would have to make somewhere between $5 billion and $10 billion within a few years. Last year, Google made just shy of $10 billion.

Warning signs are twinkling. Between early 2011 and 2012,  Facebook's costs grew at twice the pace of their revenue -- 95% to 45%. Its ad revenue declined in the first quarter of this year. This week, GM, the third-largest advertiser on Facebook, announced they have decided to remove all ads from the site. "It's not an advertising mechanism," said Martin Sorrell, chief executive of ad giant WPP.

But it is an advertising mechanism. Its short-term strategy is advertising -- the company makes four out of every five dollars of revenue from ads -- and its long-term strategy is advertising. The company reportedly hopes to turn user comments into mini ads. Either way, the future of Facebook depends on its 900 million users: how much detail we're willing to share, how many ads we're willing to take, and how valuable our attention on Facebook appears to be.

THE PRICE OF ATTENTION

Although Facebook earns more than 82% of its revenue from advertising, its IPO might not be the most important moment for Madison Avenue on Friday. This is the week that broadcast executives pitch their new shows to television advertisers. Billions of dollars of marketing will be decided by a few flashing screens of programming. Facebook should pay attention.

"One of the most successful forms of advertising ever is the yellow pages," Michael Wolff writes in an insightful column this week. "Its costs are low enough to make its relative lack of effectiveness still worthwhile to the advertiser, and there are enough advertisers. That's the Google model; it's the ultimate yellow pages. And that's the current Facebook model."

Facebook has to become more like TV, Wolff contends. Television ads work, because companies can buy slots of time between programs that attract a certain kind of audience. The per-person costs aren't high, as they're spread across millions of people. Even a pricey for a 30 second-spot on Desperate Housewives comes out to only 79 cents per household, according to Eduardo Porter's The Price of Everything. This doesn't sound so different from Facebook, whose advertising works (in theory), because companies can buy slots of space that attract a particular kind of audience. As with television, it allows marketers to display information to a segment -- such as guys born between 1970 and 1990 who live in northern Virginia and like Coldplay.

But here's the rub. In 2011, Facebook made $4 per user per year. To earn its market cap of $100 billion today, it would have to earn five-times that figure per user. This sets up a tug-of-war over user information. Facebook has lots of it. Advertisers want to see more of it. Users want them to see less of it. The true value of Facebook could depend on who wins that turf war.

THE SOCIAL UNIVERSE

The upside is that Facebook has created something without precedent: an addictive product for hundreds of millions of people who spent their time creating, for free, something of huge importance to advertisers, which is personal information about their lives and interests. The downside is that Facebook is still extremely protective about the sort of ads it displays, partly because it's extremely sensitive to the fact that its users consider Facebook private. In a recent poll, more than half of respondents said they felt "not safe at all" using Facebook to purchases goods and services.



Ultimately, Facebook isn't like Google, or the yellow pages, or TV, and it doesn't want to be. It wants to be something totally new: an infrastructure for the social web that can attract old-fashioned ads, create new ads that blend user content and marketing, create software that underpins that social web, and charge monopoly rents for its sprawling influence. And its investors are betting on the fact that no company this wide, this deep, this addictive, and this influential could possibly fail.

When JP Morgan announced a shocking $2 billion loss, chief executive Jamie Dimon admitted the amount could double to $4 billion by the end of the year. Instead it has increased by 50% in a matter of days. Two billion has become $3 billion, as hedge funds and other investors "have fueled faster deterioration in the underlying credit market positions held by the bank," DealBook reports.

It is, as Conor Sen quipped on Twitter, "like a BP oil spill in derivative form."

Two numbers add some perspective. The first number is $400 million. That's the sum Dimon warned that financial regulation, in particular the Volcker Rule, could cost his bank in the first year of trading. JP Morgan's unlucky bet has fueled its loudest critics. "In other words," Rep. Barney Frank said, "JP Morgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them." We cannot know that strict implementation of the Volcker Rule, when it is finally defined and fully implemented, would have prevented this transaction, since there are few public details about the nature of the big loss.

The second number is $3 billion. No, not the $3 billion lost by the investment office in this set of transactions, but the $3 billion profit JP Morgan is still expected to earn in the second quarter, after factoring in the current loss. "What's more," Nelson D. Schwartz and Jessica Silver-Greenberg report, "the chief investment office earned more than $5 billion in the last three years, which leaves it ahead over all, even given the added red ink."

Bank runs in Greece could signal the death rattle of the euro zone as we know it. Here's why the whole thing might have been doomed in the first place.

Last week, I shared what I called the funniest graph I'd ever seen about why the euro was toast. It showed that the countries making up the euro zone were more different from each other than basically every random grab bag of nations you could name, including (unbelievably) every country beginning with the letter "M."


That graph came from Michael Cembalest, chairman of Market and Investment Strategy for Asset Management at JP Morgan. I wondered how our 50 states might compare across these measures of dispersion, despite the fact that the U.S. has not only a monetary union (i.e.: we all use dollars) but also a fiscal union (i.e.: we pay we lots of taxes to the federal government, which doles them out across all 50 states).

Cembalest answered with a second graph, this one showing fiscal transfers between rich states, like California, and poorer states, like Missouri. The graph, pictured below, makes a complicated point very simply. The U.S. federal government uses automatic fiscal transfers, such as Medicaid, to protect the indigent and old and sick, no matter where they reside. The euro zone doesn't have a comparable fiscal union. Instead it has debates about how much the hard-working Germans should bail out the lazy PIIGS (their words, not mine). What Germany might call "a permanent bailout," we just call "Missouri."

This morning, Cembalest sent over five more charts. Together, they explain five big differences between the US and the EU.

The 1st difference is taxes. In the US, people pay most of their taxes to the federal government, which has the power to spend that money on health care, defense, and income security in any state it pleases. If one state has a natural disaster, the feds use this general fund to help with the bill. But in the EU, people pay the overwhelming majority of their taxes to individual countries. Upshot: no fiscal union.


The 2nd difference is labor costs. One key ingredient in the euro crisis is the price of work between the core and the periphery. Spanish wages have gone way up since 1999, making their goods uncompetitive, while German labor costs have not increased since the euro was adopted, which has supercharged their exports. For the euro zone to be workable, Spain and Germany must converge, and that means a lot of pain in Spain. In the US, the two regions with the biggest differences in labor costs -- the southwest and the far west -- are much closer together.


The 3rd difference is income variation: Throughout the 20th century, personal income growth across the U.S. converged dramatically. It's true that New Yorkers tend to earn more than Mississippians, but the difference between regional income isn't what it used to be.


The 4th difference is growth rates: "In theory," Cembalest writes, "the lower the dispersion of growth across countries/regions, the easier it is to maintain a given monetary policy stance for the entire union." In other words, the growth rates of the U.S. states are more similar than the growth rates of countries in the euro zone.


The 5th difference is labor mobility: Basically: We move more of it. That matters because when working people move around, they even out the economic differences between regions of the country. As the regions move toward each other in competitiveness, it reduces the need for fiscal transfers between them (see Difference #3).

Michael Linden presents this clever, smart graph that shows spending, taxes, and the deficit all lower today, as a share of GDP, than in Obama's first year:

We have, on this site, focused like a laser beam on the job crisis for the young. But today, a compelling report from the GAO reminds us that among those who have lost a job, older Americans might just have it worse.

Actually, they absolutely have it worse. Americans over the age of 55 are the least likely to find another job and the most likely to take a significant pay cut for the next position.

Who they are: Since 2010, more than half of all unemployed older workers -- or 1.1 million people over the age of 55 -- have been out of a job for more than six months. Forty-two percent have been out of work for more than a year (see graph).

Even when older people find new work, the new wage is typically only 85 percent of the old salary. By comparison, typical displaced worker between the age of 20 and 54 finds a new wage that's at least 95% of the old salary.

Why they can't find work: There's the health care reason and the technology reason. Experts told the GAO that employers are reluctant to hire older workers because they "expect providing health benefits to older workers would be costly." Others said computer skills often hold back the elderly, especially when the job application is all online. 

Where they go: Laid off and locked out, older Americans are increasingly likely to retire early.* About 140,000 more older workers applied for Social Security retirement benefits than the program expected in 2009. The recession has also coincided with a sharp increase in applications for disability benefits. It's clear that, in addition to the 1 million of older Americans who have been looking for work unsuccessfully for more than six months, hundreds of thousands of other older workers have dropped out and retired early.

Why retiring early is no solution: If they choose to drop out of the labor force, older Americans are faced with a slew of bad options. If they have defined contribution pensions, they will retire poorer because they will have had less income to contribute to pensions. If they have defined benefit pensions that use "years worked" in their formula, they will also retire with less to draw down on. If they choose to dip into Social Security early, the monthly retirements will be reduced permanently. And if they accept disability payments, they aren't allowed to look for work. The upshot is that, despite all of our personal and public retirement plans to prepare the elderly for retirement, each plan is weakened in an environment of high unemployment among seniors and near-seniors.

To sum up, although the young face the highest unemployment and the worse income depreciation, it is the oldest generation that faces the longest duration of unemployment.  Somewhat paradoxically, older workers are both more likely to be employed and more likely to be long-term unemployed than any other group.

* Along with lower engagement among young people, early retirement is one major reason why economists are seeing lower-than-expected participation in labor markets. This makes our unemployment rate seem better than it really is, because the rate is calculated by dividing unemployed people in the labor force by the total number of people who have or want a job. When fewer people seek work, the denominator shrinks and the rate is depressed.

Here's a true story about college in America. In a world of unsure investments -- where home prices rise and fall by 30% and hedging can lose you $2 billion in a jiffy -- college remains perhaps the last sure(-ish) bet. The typical college graduate earns $570,000 more than the average person with only a high school diploma over her lifetime, Michael Greenstone and Adam Looney concluded in their remarkable report on the value of a higher education. With an annual rate of return of 15.2 percent, college has outpaced just about every other general investment category, including gold, corporate bonds, U.S. government debt, and hot company stocks.

But here's another true story about college in America. It's crazy-expensive and getting more so every year while middle-class incomes stagnate or worse. As states cut back on support, families are having to pick up the tab. This has sent student debt skyrocketing past $1 trillion. The share of students taking out loans to attend public college has increased from 46% in 1992 to 62% in 2008. In 1993, about 2 percent of students at nonprofit private colleges took on more than $50,000 (2008 dollars) in debt. In 2008, it was 8.6 percent.*

Both of these true stories played loudly in my head when I read the New York Times' wonderful and comprehensive front-pager on student debt. That we have record-high student debt in this country is a sign of both true stories, the good and the bad. More people investing in a college education? Great news. More people too deep in college debt to take the jobs they want, buy the cars they want, own the homes they want, and start the lives they want? Really bad news.

The long article begins zoomed in on Kelsey Griffith, a graduate of Ohio Northern University, who owes $120,000 in student debt. That is a shocking sum, the kind of debt that distorts a life. It's also not typical. It is, in fact, decidedly atypical. Half of all indebted college students owe less than $12,500. Ninety percent owe less than $50,000. Griffith is the 3%.

This graph, courtesy of our Jordan Weissmann, tells the rest of that story:

I don't present this information to discredit Griffith's debt crisis, but to frame it. Extremely expensive private schools like Ohio Northern and George Washington graduate students with average debts above $30,000. Among for-profit schools, one in four families owes more than $50,000 in debt. A concerted effort to name and shame schools high-debt schools would send important signals to administrators to slow tuition inflation. Colleges set prices that families agree to pay. Colleges can independently decide to control their prices, or families can collectively reject higher-debt education for cheaper alternatives.

But, at the risk of wheeling out my favorite dead horse, the other part of the student debt crisis is all of the debt that students aren't taking on because they're not going to college. College grads still earn more, work longer, and are employed at higher rates than everybody else. Their investment -- that is, their debt -- benefits the country at large in the form of a more-skilled workforce, higher productivity, higher GDP, more taxes, and so on. Newspapers can't report on this part of the student debt crisis, because there is no headline statistic to report on. You can't put a number on how much money some promising inner-city student is giving up in lifetime earnings by not attending college or how much it's taking away from federal income taxes through 2030. But just because those statistics are invisible don't mean they're not real.

Here's a statistic that is real: More than 50% of 21-year-olds in America today have dropped out of the college-graduation track, either by not finishing high school or by not going on to college. That is a blight worth talking about. This group, too, is hobbled by a great debt.

*Update: Edited to reflect corrections printed by the New York Times, per an email from the Education Department. Also see this piece, passed along by Jason DeLisle at the New America Foundation, which points out that (a) 34% of graduates from 2008 had no loans to begin with and (b) the typical borrower owed about $20,000 one year after graduation -- more than the $12,500 average cited by the New York Fed study graphed above, but less than the often-cited $25,000 figure, which represents average, rather than median, debt for current student borrowers.