Derek Thompson

Mitt Romney gave them the idea. The fiscal cliff lent them urgency. The election bought them momentum.

Here are supposedly the 60 most powerful words in all of politics:

I, ___ , pledge to the taxpayers of the district of the state of ___ and to the American people that I will: One, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and Two, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

Washington calls it The Pledge. Republicans call it common sense. Democrats call it somewhat more unprintable things. Written by Grover Norquist and signed by all but 22 elected Republicans on Capitol Hill today, it is a simple promise to never, ever raise taxes. And, since 1990, Republicans on Capitol Hill never, ever have.

When President Bill Clinton raised taxes in his first year in office, he received exactly zero Republican votes. The Pledge had build a steel curtain between the tax raisers and the GOP. Four years later, Clinton cut investment taxes. Four years after that, President George W. Bush cut taxes again. And then again. We've never raised them since.

But in the wake of President Obama's victory last Tuesday, Norquist's steel fortress is creaking. The White House insists that there will be no deal to avoid the fiscal cliff unless taxes go up for the richest slice of American households. House Speaker John Boehner has responded that he would be willing to accept new revenue "under the right conditions," although he has also stated flatly that "there is no mandate for raising tax rates."

How do you raise taxes without raising rates? You borrow an idea from Mitt Romney. If Obama keeps everything in the tax code just as it is and caps itemized deductions at $50,000, he could raise just over $700 billion over ten years. In this plan, poor and rich families alike would pay the same low rates, but the richest households wouldn't be allowed to write off quite so much of their charitable donations and mortgage debt. As a result, they would pay a higher tax. How much higher?  Matt O'Brien brings the graph:

I'm ready to make a bold prediction: Republicans will vote for a plan to limit deductions and raise taxes. Not a few of them. A lot. Their votes might violate The Pledge and earn the Wrath of Grover. But it will also spare them from two fates worse than wrath. On the one hand, there is the disgrace of clashing with an easily reelected, and suddenly sympathetic, president in a way that clearly damages the economic recovery. That would mean falling over the fiscal slope into a recession clutching The Pledge, which could potentially damage their party and position on taxes even more than a subtle compromise. On the other hand, there is the clear humiliation of smashing The Pledge into a million piece by actually raising tax rates. The Romney Plan offers a middle path: Uphold the first 38 words of the The Pledge (no tax rate increases) and forget the last 22 (no revenue-position deduction cuts).

Norquist and some Republicans will scream. Let them. This would not mark a radical departure for the Republican Party. In fact, it would signify a return to sanity following a radical departure from responsible governance. Grover Norquist's desk holds the bust of President Ronald Reagan (as seen on 60 Minutes, above). Tax increases are a part of Reagan's legacy. After signing a massive tax cut in his first year, the Gipper signed laws raising gas taxes, payroll taxes, estate taxes, and even federal income taxes by broadening the base and closing loopholes.

Raising taxes after cutting taxes isn't historic. It's common. It's what we did for decades. Until the 1990s, the U.S. had not gone more than than 11 years between tax increases since WWII. Next year would mark the 20th anniversary of the last federal tax increase. It's a tradition worth ending.

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Zara didn't have to invent a brand new product to become the world's biggest fashion retailer. It just had to invent a new process. And process innovation is dominating the global economy.

There are three steps to being a successful fashion company. Step one: Make clothes that people want to wear. Step two: Sell enough clothes for more than you made them. Step three: Do it again, and again, and again.

Easy enough to list. But each step is fraught with its own difficulties. First, style is fickle and fleeting. For example, the naked abs and lightly perfumed stores that once sold millions Abercrombie & Fitch shirts are now gauche reminders of last decade's trends (the stock is down 60% from its 2008 high). Second, distinguishing yourself is expensive. Savvy designers and memorable advertising cost a lot of money. Both are essential if you want to stand out in a crowded global marketplace for clothes, where you're dong battle with department stores, legacy brands, online upstarts, and boutiques.

Zara, the world's largest fashion retailer, has an innovative solution to both the style problem and the marketing problem, as Suzy Hansen explained in the New York Times magazine this weekend. Rather than hire world-class designers, Zara, which is based in Spain, politely copies them. Then it relies on a global network of shopper-feedback to tweak their designs. Corporate HQ absorbs thousands of comments and sends tweaks to their manufacturers in Europe and Northern Africa, who literally sew the feedback into their next line of clothes. The clothes are shipped back, and the stock changes so quickly that shoppers are motivated with a "now-or-never" choice each time they try on a blouse that won't be in-store in a few weeks. It's the user-generated approach to fast fashion.

That's the design challenge. How about advertising? Basically, Zara doesn't do it. There is no ad budget. Instead, the company spends ungodly amounts of money buying storefronts next to luxury brands to own the label of affordable luxury:

"The high street is really divided according to brand value," says [Masoud Golsorkhi, the editor of Tank, a London magazine about culture and fashion], who is also a consultant for fashion brands. "Prada wants to be next to Gucci, Gucci wants to be next to Prada. The retail strategy for luxury brands is to try to keep as far away from the likes of Zara. Zara's strategy is to get as close to them as possible."...

Zara stores cozy up to the most famous brands in the world to sing their luxury ambitions even as they profit off a brilliant, cheap, short supply chain that delivers similar fashion at a much lower price.

Supply chains sounds boring. But they're the secret to Zara's success. Rather than ship skirts and dresses from Chinese plants where they arrive in-store after the style has peaked, Inditex (the parent company) makes the bulk of its clothes in Spain and Morocco. A hemline suggestion goes from a customer's lips to a sales rack at record speed. The company, now the largest fashion retailer on earth, has grown overall sales by about 50% in five years to $17.5 billion. Its employees have gone from 80,000 to 110,000 in that time, despite being headquartered in a depressed Spanish economy, and selling predominantly to a very sick European continent.

ELEMENTS OF STYLE

The Zara Model is successful, global, and enviable. But one wonders: Is it really innovation?

Two weeks ago, Clayton Christensen, the man who coined the "Innovator's Dilemma", described three forms of innovation. First, "empowering" innovations create jobs by selling elite products to the masses. Much of the manufacturing revolution that put cars and toasters in every household falls under this category. Second, "sustaining" innovations replace old products with new models (i.e.: Ford phases out the Taurus and builds better cars each year) and have a basically neutral effect on overall employment. Third, "efficiency" innovations reduce the cost of products and services and can eliminate more jobs than they create.

Which kind of innovator is Zara? It's creating jobs by bringing elite fashion to the masses, which sounds empowering. It's competing with other global fast-fashion corporations, like H&M, for a sliver of your apparel budget, which sounds sustaining. And it's cannily reducing the cost of making high-fashion clothes, which is purely efficient.

But Zara's most important contribution isn't a new product. It's a new process: fast fashion, directed by customers, and enabled by a short manufacturing leash. Process innovation is the story of modern retail -- especially here in the U.S. Amazon showed us you can shop with a mouse, deleting thousands of storefronts in the process. Groupon and LivingSocial moved the coupon business to our inbox, arguably helping merchants clean out their slowest inventory. And then there's Walmart, the largest employer in the United States, which used supply chain management to push down prices, forcing local businesses to follow, and increasing productivity throughout the retail business.

The outcome of process innovation in the retail sector has been clear in America: Lower prices, less waste, and fewer workers. Retail employment grew alongside population for most of the 20th century. In the 1990s, it stopped. Here's a graph of total retail employment in the United States compared to professional business services and the health/education super-sector. This isn't the end of retail. But it is something like the end of retail employment growth.

Zara and other process innovators are welcome for cash-strapped customers and they're a good story for Spain and other countries in its global family that have seen 40,000 jobs created as a result of Inditex' genius. The question isn't whether Zara's strategy is innovative. It is. The question is what is their innovation costing us?

Here are the demographics of Obama and Romney voters:

White voters accounted for 88% of Romney's support and 56% of Obama's. Their share of the country is declining by about 2 percentage points with every presidential election.

Latino, Black, and Asian voters accounted for 10% of Romney's support and 42% of Obama's. Their share of the country is growing by about 2 percentage points with every presidential election, with Latinos accounting for three-fifths of that growth.

That first graph was the GOP's present demographics problem. This, from Pew, is the future.

In 1988, Michael Dukakis lost the white vote by 19 points and won 111 electoral votes. In 2012, Barack Obama lost the white vote by a worse margin -- 20 points -- and tripled Dukakis with 332 electoral votes. Country's changing.

Americans are fond of unrealistic new year's resolutions, especially regarding weight loss, and this year, Washington is in on the tradition. According to current law, the U.S. government has promised itself that it will slim the deficit by raising taxes by about $400 billion and cutting spending by tens of billions in 2013. This is the mother of all fiscal diet plans. It would shrink our budget shortfall so quickly that we'd fall into a short, sharp recession, according to the Congressional Budget Office.

Washington calls it the "fiscal cliff," a Ben Bernanke-ism (there is only one, thankfully) that refers to the suddenness of higher taxes and mandatory spending cuts. But, as we explained this morning, cliff is the wrong metaphor. There is no ledge. There is no plunge. There won't be a recession on January 1. Many Americans won't feel the spending cuts or even notice higher taxes for weeks.

So let's abandon topography and call it what it is. It's a Fiscal Fast.

Basically, U.S. debt has been gaining weight over the last few years, and for good reason. When the private sector pulled back, the public sector had to grow to fill the gaps in demand. Spending rose and tax revenue declined, both because people made less taxable income and because we added tax cuts on tax cuts to encourage spending. Fat deficits are bad for the future. But they're good for the moment. When borrowing money is easy, and GDP growth is under 2%, and unemployment is over 7%, deficits aren't your first concern. Your first concern is growth and jobs.

But the U.S. has scheduled a fiscal flash diet to begin on January 1, 2013, and as we near the end of 2012, there are regrets everywhere. Higher taxes and lower spending would starve the weak economy of much needed fuel. We won't fall on our face immediately. That's not how diets work -- even extreme fasts. Nobody says "No more lunches for me" and then suddenly drops to the floor clutching her stomach. Instead, the accumulating effect of less nourishment gradually grinds you to a halt. That's how it would be for the U.S. economy. The combination of higher taxes, lower spending, lost jobs in companies close to government, and stock jitters would weaken the economy until we finally stopped growing for a bit sometime in the late first or second quarter of 2013.

It's important that we get the metaphor right. If you think of this as a cliff, you imagine a hard deadline on December 31, after which we fall headfirst into some abyss. That would argue for a December deal, no matter how bad for either side. But there is no cliff, and there is no abyss. There's just an overly aggressive diet, foisted on us by a political system divided between two very different ideas of how we should collect and spend money, that will slowly emaciate the recovery in 2013. Right now, we don't need a deal, by any means necessary. We need the right diet for 2013.

Understanding the biggest story in Washington today

The end of the election means the most important story in politics is the Fiscal Cliff -- a sudden rise in taxes combined with spending cuts scheduled for January 1, 2013.

But before we get to the policy -- and the graphs -- let's talk about the term. "Cliff" is an imperfect analogy. It's really more a long, rolling hill. A fiscal slope.

In January, family income won't plunge into the watery depths and government spending won't collapse. Instead, higher tax rates would reduce family income throughout the year, and mandatory spending cuts would shrink the deficit. The federal government would have to cut programs, fire some people, and cancel some company contracts. It would be bad. It might turn out to be awful. But it wouldn't be sudden.

Whether you prefer cliffs or loping hillsides for your metaphor, topography is a good analogy for this crisis. It has been forming, as if tectonically, for many years. One could trace its origins all the way back to the 1960s and the creation of the perennially troublesome Alternative Minimum Tax. But the best place to begin is 2001, when President George W. Bush signed the first of two tax cuts which were scheduled to expire under the next president. That next president, Barack Obama, twice extended the tax cuts and added his own, including a huge break on payroll taxes. Then, in 2011, after Republicans insisted on trillions in spending cuts in exchange for raising the debt ceiling, the Budget Control Act. This law scheduled $1.2 trillion in cuts divided between defense and other parts of government.

Now all of these things -- the Alternative Minimum Tax, the undoing of Bush/Obama tax cuts, and the Budget Control Act -- are about to hit in seven weeks. What will that look like? How will it feel? How could we avoid it?

To the graphs, my friends.

What Does the Fiscal Cliff Look Like?

Here is an at-a-glance look at the $500 billion in government savings that will take place in 2013. Taxes are in BLUE. Spending is in RED.

The pie, as you can see, is almost all blue. This is a tax cliff. Or a taxy knoll. Whatever.

Half of the savings come from the expiration of the Bush tax cuts, the Obama tax credits, and the payroll tax cut. Another quarter comes from the alternative minimum tax kicking in and walloping upper-middle-class and rich families.

As for the Budget Control Act, it's a $1.2 trillion machete chop to government spending. But that's a 10-year figure. Only 5% of that cut -- about $65 billion -- would actually take place in 2013, according to the Committee for a Responsible Federal Budget. That's a big deal for defense contractors and doctors and federal government employees.

But most Americans wouldn't feel it. They'd just feel the tax hike.

How Much Would the Fiscal Cliff Cost You?

You pay more. That's the three word summary of the fiscal cliff's impact on your taxes.

If your household makes a typical salary -- say, $50,000 -- you should expect to pay $2,000 more in taxes next year. If your household makes an atypical salary -- say, $500,000 -- you should expect to take a $50,000 hit. The richer you are, the bigger the hit you face as a share of income. The top 0.1% would see an average tax hike of $600,000.

Where do the tax increases come from? To answer that question, here's another great chart via TPC that shows which policies would raise your taxes and by how much.

The poorest Americans, few of whom pay federal income taxes, would be hurt mostly by higher payroll taxes and expired credits from the Obama stimulus. The typical household would be hit equally by higher payroll taxes and the expiration of the Bush tax cuts. The hit to the richest 1% would come mostly from the expiration of the Bush tax cuts, alone. Payroll taxes and stimulus credits barely affect them.

What Will the Fiscal Cliff Do to the Economy?

The double whammy of spending cuts and tax changes will push the U.S. economy into a recession in the first six months of 2013, according to the Congressional Budget Office. Unemployment would rise to 9%. Real GDP would decline by about 3% in the first half of 2013. That's a certain double-dip.

But don't confuse certain for immediate. If we wake up on January 1 with no deal, we won't be in a recession. Stocks might get jittery. Cable news will get super-jittery. Corporate leaders will sign more letters. But the deadline for avoiding the recession isn't hard, and it's not December 31, 2012.

Republicans know that, and Democrats know that, so you should, too. Since the fiscal cliff is really more like a loping hillside that dips below water sometime next year, neither side has any macroeconomic reason to reach a hasty bad deal.

Should We Avoid the Fiscal Cliff?

Nobody wants a recession. But you know what's worse than a short-term recession? A bad long-term deal. That's why some liberals are asking the president to dig in and not make a compromise with Republicans that would change Social Security and Medicare, or give up on higher tax rates on the richest 2%. 

The CBO has projected that making a deal to avoid the fiscal cliff entirely would improve GDP growth by an astounding 2.9% by the fourth quarter of next year (see left). To put that in perspective, we're expected to grow by 1.5% in the fourth quarter of this year. About two-thirds of this growth would come from keeping taxes down. The rest would come from keeping spending up.

Two things: The rising cost of making television and enough cord-cutters abandoning the cable bundle to blow up the business model. The first trend is happening. The second one isn't.

The first thing to ask when somebody predicts The End of Television as We Know It is: Which television are we talking about?

There are three things we talk about when we talk about TV. First, there is the box with a screen, which we call "The TV." Second, there are the stories we watch on the box, which we simply call "TV." Third, there is the company we pay to transport those stories to the box, which we can call "Pay TV."

Those distinctions sound simple enough, but they're often confused. A familiar argument about TV is that remotes are confusing and guides aren't intuitive, so obviously the television industry is backwards and ready to get disrupted. Partially true! Remotes are confusing and guides aren't intuitive, and it would be better for the cable companies if they weren't.

But this isn't a fundamental problem with the business model between media companies, cable/satellite providers, and consumers. It's really a hardware design challenge. If Time Warner Cable comes out tomorrow with the perfect remote and an awesome guide interface, consumers will rejoice and TWC will grow its market share, and The TV will be more fun to use ... but the fundamentals of Pay TV won't change at all.

Here are those fundamentals, as I explained in a column for the magazine. A small clutch of media companies owns 95% of the channels you watch. This oligopoly has the power to dictate terms to the cable/satellite companies that you pay each month. These cable/satellite providers are legally obligated to offer less popular channels alongside must-have networks like TBS and ESPN. That bundle costs the average household about $80, with roughly half going back to the media companies in "affiliate fees" and roughly half staying with the cable companies in infrastructure costs and profit. Cable companies didn't invent the bundle. They're prisoners of the bundle, just like you and I are.

This model isn't written into stone, and my column doesn't claim that the cable business is invincible. It explains why cable has been resilient. There are lots of reasons why TV hasn't gone the way of music and newspapers in the Age of Internet. First, HD video is much harder and more expensive to transport than a music file or article page. Second, networks have learned from the music industry's collapse to cling furiously to their rights. But the most important reason why cable TV hasn't changed is also the simplest to understand. It simply hasn't had to. It's making too much money.

What's going to kill the TV business, or at least challenge it, isn't Apple designing the perfect remote or Microsoft designing a superior guide. It's two things.

First is the rising cost of entertainment, which is happening right now. The sitcoms and great dramas you love cost more to produce every year because they're labor intensive. Sports rights are seeing even worse inflation. ESPN recently signed a deal with the NFL to pay 73% more each year for Monday Night Football. So Comcast and its ilk are stuck between rising programming costs and flat-lining middle class wages. That's a problem, and eventually something has to give. But in the short term, providers can merge and channels can be cut and costs can be saved. Expensive shows and sports rights shouldn't destroy the TV business on their own.

Combined with a second trend -- the accelerating exodus of attention away from television -- the TV business might really be in trouble. But this second trend is still more of a projection than a reality. One hundred million households still pay for a bundle of networks. That number isn't really going down. With the pace of household formation tripling in the last year, it could even go up. The number of cord-cutters -- households that have replaced the bundle with over-the-Internet video like Netflix -- is in the low single-digit millions. TV-providers have even found a hedge against cord cutting. They've become Internet-providers and expanded overseas to make up the revenue they're not making here. Cord-cutting is a marginal trend that could sneakily turn mainstream, creating an innovator's dilemma for TV and cable. But not yet.

If you're interested in the future of TV, don't pay too much attention to the remotes and the guides. Just follow the eyeballs. They're still tuned in.

Republicans have a choice. They can blame their messaging. Or they can blame their message.

Last night, with the reality of Obama's reelection coming into focus, Bill O'Reilly spoke from his heart.

"The white establishment is now the minority. And the voters, many of them, feel that the economic system is stacked against them and they want stuff. You are going to see a tremendous Hispanic vote for President Obama. Overwhelming black vote for President Obama. And women will probably break President Obama's way. People feel that they are entitled to things and which candidate, between the two, is going to give them things? ...

"The demographics are changing," he said. "It's not a traditional America anymore."

This is a remarkable statement, not only because it reflects spooky indignation and mild panic, but also because Bill O'Reilly is basically right. Obama won tomorrow's electorate by a landslide and won. Romney won yesteryear's electorate by a landslide and lost decisively.

White men are now a clear minority of the electorate. Old Christian white men -- the bread and butter of the GOP -- hardly comprise one-third of voters. Americans under 30 broke for Obama over Romney 60-37. Hispanics voted 71-27. Asians went 73-26. Blacks went 93-6. Women went 55-44 for the president. Even though President Obama won a smaller share of the white male vote than Michael Dukakis in 1988, he will win three times as many electoral votes as Dukakis did.

This isn't O'Reilly's idea of America anymore. And it will look increasingly less like O'Reilly's America with every passing election.

The GOP has a choice now. It can can run in the face of these demographic changes or it can embrace them with a new sense of priorities. Rather than mock minorities who tend to be lower-income for "wanting stuff," maybe Republicans should spend some time figuring out what they want.

Here are three ideas.

(1) SOCIAL MOBILITY. Hispanics and blacks and young single women really are more likely to "want stuff" from government. It's not because they're minorities. It's because they're overwhelmingly more likely to be middle-class or low-income. The GOP's mantra is cut income taxes, cut income taxes, cut income taxes. That's a good, straightforward pitch to the top 10% of earners who pay 70% of income taxes. It's less interesting to the 50% of Americans who don't. These lower-income voters tend to support the Democrats' approach to targeted government assistance and welfare. Republicans need to find a conservative answer to the challenge of social mobility. They should ask themselves: What are the building blocks of human capital, and how can inventive free market principles improve them for poor families?

(2) IMMIGRATION. The growing Asian/Hispanic population is gnawing at the GOP's percentages in key states like North Carolina, Florida, and Colorado. Emphasizing expanded legal immigration over punishment for illegal immigrants is one way to embrace an Hispanic population that's quintupled in the last 50 years. Multiplying the number of student visas for engineers and foreign-born college students? That's not just an easy play for innovation and growth. It's also a clever wink to an eastern and southern Asian constituent that makes up a disproportionate share of those visas.

(3) THE DEFICIT. The deficit is still the third most important issue for voters. But only 35% in yesterday's exit poll explicitly objected to higher taxes on households making more than $250,000. Maybe there is space for moderate deficit hawkery that doesn't insist on 100% spending cuts.

Republicans have a choice. They can blame the messaging or they can blame the message. Blaming the messaging means doubling down on lower taxes as the magic antidote to every economic problem for every family. Changing the message means seeking new ideas to appeal to new voters. "The demographics are changing," O'Reilly said. "It's not a traditional America anymore." Time for some non-traditional thinking from the GOP.

Exit polls showed that the election was a referendum on economic issues, and president won that referendum

The single biggest misconception from the 2012 campaign season? It was the persistent idea that the economy would boost Mitt Romney's election chances.

The running question throughout summer into the fall was whether Obama could win "in spite of" the economy, "in spite of" the economy, "in spite of" the economy. Last night, we learned something. Obama didn't win in spite of the economy. He won because of the economy.

Exit polls showed that the election was a referendum on economic issues, and president won that referendum. Sixty percent of voters said the economy influenced their vote the most. That's almost as much as the next two issues -- health care and the deficit -- combined, times two. Half of voters blamed President George W. Bush more than Obama for the deep recession and sluggish recovery, Politico pointed out, and a plurality of voters said the economy was getting better.

In other words, enough voters bought the story the president has been selling for years: Parachuting into the worst recession in modern times, the White House did what they could to set a floor for the downturn and create the conditions for a steady march back to normalcy.

Unlike most political stories, this one is mostly true. Obama lost 800,000 jobs in his first month in office through no fault of his own. He passed an imperfect but useful stimulus that elevated total public spending at a time when the private sector was pulling back. He partially nationalized the auto industry while wisely avoiding calls to nationalize the biggest banks. The stress tests raised confidence in the financial system by telling investors they trusted the biggest banks' integrity enough to be transparent about their health. He successfully kept deficits high after the stimulus wound down with a payroll tax cut. Yes, he failed to find anything resembling common ground with the GOP in his last two years in office. But in that time, he's still presided over 1.7% annual GDP expansion while creating about 150,000 jobs per month.

That's not a great growth. It's hardly even satisfactory growth. But it's growth, nonetheless. And almost every election model and historical trend we have shows that personally popular presidents overseeing rising GDP and steady job creation are favored to win reelection.

So, what now? All signs point to accelerating growth in the next few months. Time is healing the wounds that Obama didn't. Households are borrowing more, which is a strong sign of confidence. More young people are leaving their parents' basements and moving into apartments. That's pushing up rents. Rising rental costs are guiding housing starts on multi-family homes. That should encourage some young couples to become first-time home buyers. If residential investment rises from the dead, it could add another percentage point to GDP growth.

If only Washington politics could learn a similar lesson in rejuvenation.

I've seen this list bouncing around the Web, so here they all are: The 10 best-performing stocks since the last presidential election, via Marketwatch.

It's tempting to pick off some low-hanging takeaways -- tech power! the rise of online everything! yuppie foods! -- but this list doesn't really tell us as much as some people would like it to. In a way, it's a glimpse into the story about how travel, luxury, houses, and cars hit the bottom in 2008 and had nowhere to go but up. When you pull back the lens to October 2007, the S&P 500 peak, you get a very different picture.

Here's the graph above, still in BLUE, with the 2007-2012 figures in RED:

Priceline and Apple are juggernauts. Just behind them, Whole Foods, Chipotle, and AutoNation doubled since the peak. Expedia, Ford, Lennar, and SanDisk have grown much less since 2007. They only look like the hottest stocks of the last four years because they fell so far the year before.

It's a form of social payment -- and an advertisement

They're everywhere on election day: "I Voted" stickers. I've seen them on jackets and shirts and faces. If almost everybody's got one, it feels pointless to put one on your own sleeve.

But actually, the fact that everybody's got one is the point.

***

Why do people bother voting?

At a pure cost-benefit level, it's hard to justify taking hours out of your day to cast a single vote when the margin of victory can be counted in the tens of thousands. But today, millions of Americans will do just that. They will break out of this narrow boundary of economic rationalization, stand around in line for hours, and make democracy happen.

And yet, we vote. We vote because we think it's important. We vote because we care about our country and our rights. We vote because it makes us feel good. It has nothing to do with economics.

But that obvious answer hasn't dissuaded economists from wondering why millions of people choose to take so much time to do something with little benefit to them, personally. In one influential paper, economist Patricia Funk studied voting in Switzerland, where the government had created a vote-by-mail system to raise the country's sliding participation.

The Swiss government thought about falling turnout like an economist. If the "time-cost" of voting was discouraging people from visiting the polls, a simple vote-by-mail system should make voting feel more like a "bargain." Good economic thinking! But the plan flopped. Turnout declined in the areas where vote-by-mail was introduced compared to the rest of the country.

The Swiss government failed to understand why people vote, Funk concluded. It's social pressure, not economics, that motivates the marginal, or on-the-fence, voter. By creating the option to vote by mail, Switzerland got it backwards. They decreased the voting costs, but also removed the social pressure.

I VOTED!

Get-Out-the-Vote campaigns are dogged about building social motivations for disinclined voters. Although low turnout should theoretically raise the value of each individual vote, research has shown that emphasizing high turnout is more likely to motivate marginal voters. Why? People care about the value of our vote. But, perhaps even more, we value being a part of a motivated group.

In small Swiss towns, being seen at your voting location might be the perfect social motivator. But in larger cities, it's probable that you won't know the strangers in line with you at the polls. The primary social pressure to vote has to come from somewhere besides being spied by your best friends as you're waiting in line. Where might it be?

People like being seen voting, as Funk concluded, but we also like being seen having voted. Theoretically something signalling to our community that we've already voted should create the same feelings of social cohesion, civic duty, and belonging. And that's where the "I Voted" sticker comes in.

The "I Voted" sticker is a signal and an advertisement. It binds people together in solidarity and reminds others to join the group. Tens of millions of people will vote in every presidential election whether there are free stickers or free cookies. But beyond these intrinsically interested (and, possibly, more informed) voters are countless more citizens who need motivation to show up at the ballot box. 

The "I Voted" sticker isn't worth squat on the market. Its value -- and its motivation -- is purely social. And to the extent that it might actually get some marginal Americans to the polls, it's also priceless.

The economy dictates the fortunes of American presidents, but presidents have struggled to dictate the fortunes of the economy

We're half a day away from the end of voting, and it's time for some real-talk about an election that was supposed to be all about the economy: The economy is more important to the president than the president is to the economy.

As Republicans have warned again and again in the last year, economies make or break presidents. They're right. Carter lost in a weak economy, Reagan won in a strong recovery, Bush lost over a shallow recession, Clinton won over a booming economy, Bush eked out a win in a shallow recovery, and Democrats swept into office riding the mother of all financial calamities in 2008.

Those stories aren't cherry-picked or fudged. They're part of a long trend. Take, for example, earnings: More than any other stat, it's personal income growth that's the best indicator of an incumbent's chance at reelection. Or take jobs: Since World War II, the one-year change in the population's employment percentage has predicted the election every year but 1976 (Watergate), according to David Leonhardt. Or take animal spirits: The average October consumer sentiment before a reelection is 28% higher than before an incumbent loss.

Candidates matter, campaigns matter, demographics matter. But the pre-election economy creates fundamental momentum that is difficult to overcome.

It's much harder for a president to make or break an economy. The White House is but one of three branches of the federal government; the federal government is but one-fifth of the U.S. economy; and the U.S. economy is a fraction of global activity, which determines gas prices, exports, and the success of most multinational companies that rely on overseas markets. 

For every president in the last 50 years who appears to be the savior or wreckers of his respective economy, there is a more plausible case that each was a beneficiary or victim of circumstances. Carter was felled by an oil shock, while Reagan was the recipient of a strong recovery powered by Fed Chairman Volcker (plus an underrated lift from the boomers entering their peak-earning years). Not even the most excitable liberals would try to credit President Clinton for engineering the 1990's productivity blast-off or blame George W. Bush for the entire housing meltdown. These men were made and unmade by their circumstances.

The same goes for Barack Obama. The president, along with his keen Treasury Secretary Tim Geithner and Fed Chair Ben Bernanke, acted swiftly to set a floor under the recession, with stimulus for the states, quantitative easing for the financial sector, and stress tests for the banks. But since his first three months, the president has hardly been able to enact any sort of policy to grow the economy besides extending various policies, like the Bush tax cuts and unemployment insurance, while tacking on a payroll tax cut that replaced lost wages more than it led to an income and job-creation boom.

A weak recovery nearly destroyed President Obama's chances at reelection. But a strong economy would seal his legacy (or create a new legacy for President Romney). With government austerity gone and a housing recovery here, the next president will probably preside over a strengthening recovery in his first year. That recovery, if it continues, would make Obama the guy who came into office losing 800,000 jobs a month and oversaw a full recovery; a strong economy could also create a halo effect that would engender support for health care reform and even bolder legislation on immigration and climate change. Meanwhile, if Romney wins, and the economy turns up in early 2013, he will look like a genius.

Just as the recovery was destined to be weak no matter who was president, the early 2013 economy is likely to be strong no matter who is president. The old rule holds: The economy dictates election fortunes and legacies, but our economic fortunes are frustratingly out of the president's control.

When it comes to the economy, divided government will keep either candidate from accomplishing anything major, and global fundamentals will outweigh anything they accomplish, anyway

There is a quadrennial temptation to call each presidential election "the most important in our lifetime," and this time (like every time) there is the remote possibility that it might be.

But probably not.

True, there are cavernous differences between the candidates -- and perhaps even deeper differences between the parties. The distance between their ideas is measurable only with the most gosh-wow numbers. Fifty-two million is how many people could lose insurance if Mitt Romney repeals Obamacare and enacts his Medicaid plan, as Jonathan Cohn reports; $1.8 trillion is how much Washington would cut the discretionary budget that pays for public goods and support for low-income families in Paul Ryan's budget; $800 billion is the 10-year cost of Romney's plan to keep the Bush tax cuts for the highest-income households. And that's just on economic policy. On social issues, the candidates are even further apart.

How could this not be the most important election of our lifetime, given those stakes? It's the political system, stupid. A 3-pronged government torn between 2 fiercely opposed parties representing 1 evenly divided electorate is a recipe for stasis, pure and simple. Barring a complete shock tomorrow night, we will wake up Wednesday to another two years (at least) of fiercely divided government, with Republicans holding the Congress and Democrats holding the Senate.

If Mitt Romney wins the election, he will preside over a divided government and find it nearly impossible to accomplish anything in his agenda. If Barack Obama wins the election, he will preside over a divided government and find it nearly impossible to accomplish anything in his agenda.

Repeal Obamacare over a Democratic Senate majority? Forget about it. Raise taxes on a GOP Congress? Can't wait to see it. Nominations for the Federal Reserve and Supreme Court are important events where the White House does seem to hold home-field advantage; and a Supreme Court ruling that overturns Roe v. Wade would be truly momentous. But when it comes to passing laws, both parties have made it repeatedly clear they don't want what the other guy is serving, and they're not terribly interested in discussing matters further. It that environment, who controls the congressional caucuses matters as much as who sits in the Oval Office.

THE FUNDAMENTALS PRESIDENTS DON'T CONTROL

When it comes to economics, I'm dovish about the significance of this election, not only because divided government will blunt either candidate's agenda, but also because global fundamentals will probably outweigh whatever they accomplish.

The U.S. today suffers from a jobs gap, a wage gap, and an innovation gap -- and the president doesn't have much control over any of them right now. The jobs gap is being filled, albeit too slowly. The end of government austerity means that we've gone from losing 200,000 public sector jobs a year to gaining more than 20,000 this year. That's a big deal. The other big deal is housing, where a nascent recovery will expedite hiring, first in construction, and then throughout the industry, while rising home prices should make consumers and businesses more confident about spending. Barring some awful news from Europe or Asia, this is going to happen no matter whom we call president next January.

As jobs return, incomes will rise, but middle class salaries will continue to fall behind their historical rate of growth. This wage gap isn't Obama's fault, and it wouldn't be a President Romney's fault, either. It's globalization, and automation, and rising health care costs, and labor's decline matching the fall of U.S. manufacturing, and a lot of other trends you have heard of, and are easily considered opaque, because they have no easy solution. Some public problems have logical matching policies (e.g.: If Social Security is underfunded, we raise taxes or tweak spending). But some middle class problems are just ... problems. When multinational companies discover that American workers within a global supply chain are replaceable with cheaper workers around the globe, that's not the president's fault; it's just a part of global business. 

Creating tens of millions of well-paying middle class jobs means giving tens of millions of people something to do with high added value. Presidents can't do that. Innovations can. But as Clayton Christensen described brilliantly in the Times, the U.S. economy has, for the moment, moved beyond "empowering" innovations that create new scalable products that require more workers toward "efficiency" innovations that make existing processes cheaper and easier -- and replace workers. The fixation on efficiency isn't evil. It's not a function of bad governance. Instead, Christensen writes, it's a stage of capitalism, and a dilemma for capitalists.

***

Any U.S. president in a divided government today faces two distinct challenges to enacting an economic agenda that makes a difference for average people. The first challenge is that the architecture of divided government prohibits any one branch from getting its way on domestic policy. The second challenge is that even getting one's way on domestic policy is probably insufficient to take on the huge global forces threatening the middle class.

There are many reasons not to vote, even though you totally should. Here are the most common (via Brad Plumer and Kay Steiger):

Some interesting details from the Census Report that came up with the data:

1. 27 percent of Asians said they didn't vote because they were busy, considerably higher than the national average of 17.5 percent.
2. 15 percent of whites said they didn't vote because they didn't like the candidates, twice as high as any other group.
3. Young people (ages 18-24), Asians, and bachelor's-degree holders were most likely to report registration problems.

* If you forced liberals to make the economic case for a President Romney, what would they say? Let's find out.

We all know why Mitt Romney thinks his presidency would help the economy. He claims his tax reform plan would spur growth. He claims Obamacare is holding back hiring, so he'd repeal it. Most people I follow don't find either claim terribly persuasive, since the growth effects of tax reform are small if negligible, and it's low demand, not future regulatory unease, that's the real impediment to job growth.

But even if Romney's wrong, he might yet be right for the economy.

There's a surprisingly robust belief that a Romney presidency -- even if it's a disaster for social issues -- could prove surprisingly, even stealthily, successful for GDP. It goes like this, briefly. A moderate President Romney would delay a shift to austerity, maintaining our healthy, high deficits while pursuing stealth stimulus and long-term deficit reduction plan with Republicans ... all of which has proved just nearly impossible under divided government.

"Romney may deserve the edge" on economics, Matthew Yglesias wrote in his endorsement of Obama this morning for Slate. "I think it's reasonably likely that President Romney would emerge as a closet Keynesian and bring us a lower unemployment rate." In a long piece for New York magazine, Jonathan Chait predicted an out-of-the-gate Romney debt-reduction plan "that increases deficits in the short run [and] allows him to offer a political olive branch to Democrats without breaking faith with his own base." Josh Barro of Bloomberg predicted that Romney could pair higher deficits with a mortgage relief plan favored by his moderate economic advisers.

Should liberals and moderates be more hopeful about the economic prospects of a Romney presidency? I asked a liberal and a moderate.

"I think there may be something to the notion that under a Romney presidency, the GOP would go back to being open to Keynesian stimulus (since they were under Bush)," Michael Linden, director of budget and tax policy at the Center for American Progress, wrote in an email. "We're probably less likely to go over the fiscal cliff if Romney wins and we're definitely less likely to have another debt limit fiasco." Linden noted, however, that Romney had steadfastly avoided a clear or specific policy for housing.

Ron Haskins, a former White House adviser who co-directs the Brookings Center on Children and Families and Budgeting for National Priorities Project, expressed optimism that Romney could uniquely deal with our long-term budget imbalance -- even if he elects to keep deficits high in the short term. "Obama has repeatedly failed to exert leadership on the deficit," he said. "There is no objective way to say Romney is more likely to deal with it, but I think he is. He is inherently a moderate. He's smart, he understands budgets and busienss, and the nature of business is cutting deals." Any deficit reduction deal will require higher tax revenues, and Romney would have a Nixon-in-China opportunity to strike that bargain, Haskins added.

"Of course, I have no way of knowing any of this," he said on the phone. "I'm just responding to your [hypothetical] question."

If Romney does pull out a surprise victory on Tuesday, we will have elected perhaps the most conservative economic agenda in decades -- one that pledges deep tax rate cuts on the rich with unspecified offsets and enacts deep, deep cuts into the parts of the budget that pay for Medicaid, public goods and income security programs. And yet! Liberals can seek solace in the fact that a President Romney would have to tack center in a divided government, and a moderate Republican in the White House be able to enact more short-term stimulus long-term deficit-reduction laws than the incumbent. But essentially, the liberal/moderate case for economic optimism in a GOP Oval Office is: "We hope Romney will change his mind."

Wishful thinking, for sure. But these are liberals, and this is Mitt Romney: It's hardly the most implausible wish they've ever made.

Yes, it does. But the factors that predict our wages predict our vote even better.

This is the general theory of wages and voting preferences in a sentence: The more income you make, the more likely you are to vote Republican ... or to vote, at all.

It's a long-held political axiom, and it's upheld in a recent study by PayScale, the nation's largest private salary survey company. In research shared with The Atlantic, they showed that Americans who make less than $70,000 (about 70% of the country) are considerably more likely to vote Democratic. Those making more than $70,000 are more likely to vote Republican.

But the relationship between wages and voting isn't as simple as two lines making an X. Let's break it down by gender, geography, and demographics.

GENDER: Men are breaking for Romney -- and women for Obama -- in a big way. Romney is holding a high single-digit lead among men, and Pew's last poll has Obama over Romney by 13 points among women, 53% to 40%.

The gender gap shows up in PayScale's survey, as well. At the $50,000 point and above, men prefer Romney. But women making between $50,000 and $200,000 are still more likely to break for the president. It is only in the top 1% of female earners that PayScale found a clear Republican preference.

GEOGRAPHY

A reasonable objection to the General Theory of Wages and Voting is this: If rich people are more likely to vote Republican, how come so many rich states -- California and the northeast, for example -- always vote Democrat, while some of the poorest states vote Republican?

Once answer is that income matters more for voter preferences in Red America than in Blue America. "In poor states, rich people are much more likely than poor people to vote for the Republican presidential candidate," political scientist Andrew Gelman found, "but in rich states (such as Connecticut), income has a very low correlation with vote preference."

The four (small) graphs to the right from Bob Shapiro measure likelihood to vote Republican against income. As you can (hopefully!) see, the line is steepest in Mississippi (top left), flattest in Connecticut, and flattening in Virginia and Ohio. In other words, incomes are a much better predictor of voting preferences in deeply red states. In swing states, they are a moderately accurate predictor, and in rich states like Connecticut, practically everybody is equally (un)likely to vote Republican.

But there's something else at play here...

DEMOGRAPHICS

It's possible that how much money we make isn't a "swing variable," but instead, the variables that determine how much money we make are the most important influences for our vote.

Take race, age, and education, for example. In one astonishing poll this summer, Romney attracted zero percent of the black vote, and president still leads 72%-22% among Hispanics. Those are considerably larger advantages than either candidate has at any particular income level.

So one thing we might be seeing in the Mississippi graph above is that poor blacks in the south are more likely to support Democrats and richer whites are more likely to support Republicans. Perhaps the more determinant factor isn't income but race. Indeed, Obama is struggling to win more than 40% of the white vote, while George W. Bush won a similar share of the lowest-income Americans' vote in 2004.

People who go to college are more likely to make more money, so you'd think they're more likely to vote Republican. In fact, college-educated voters have become considerably more Democratic since the 1980s at every age level. You might think it's just women. It's not. White college-education men have become *much* more Democratic since the 1980s while white voters without college degree have become significantly less Democratic. About 43% of white college-educated men voted for Obama in 2008 after breaking 2-1 for Republicans in the 1980s. Meanwhile, according to Larry Bartels at Princeton University, white voters without college degrees have become significantly less Democratic recently; although the trend is confined mostly to the south.

***

The upshot is that just because there is a strong relationship between income and voting preferences doesn't mean that it's income itself -- or, certainly, income alone -- that shifts our preference. Geography, education, race, and marital status all influence both our earning potential and our vote.

Bottom line: Whoever wins on Tuesday inherits an economy that is still awfully weak and a jobs recovery that's clearly gaining momentum

Here's the lede you'll read in most newspapers today about Friday's jobs report: "The economy added a hearty 171,000 new jobs in October, and the unemployment rate ticked up to 7.9%."

Nothing about that lede is wrong, technically. But it's incomplete, for three reasons.

First, the BLS actually discovered 255,000 new jobs. The payroll survey, one of two used to produce this report, revised its jobs-added estimates in August and September by an additional 84,000, bringing August's total to 192k and September to 148k. For months, it looked like the unemployment rate was falling inexplicably fast. It turns out we were counting jobs added too slowly.

Second, and somewhat counter-intuitively, the fact that the unemployment rate went up is good news about today's economy. Calculated in a second survey of households by the BLS, the rate moved to 7.9% as more people entered the labor force. More people looking for work is good news, but when job seekers grow faster than jobs, the unemployment rate ticks up. The rising unemployment rate doesn't mean the economy is getting weaker. It means discouraged workers are feeling more encouraged because the economy is getting stronger.

Third, although every jobs report is subject to revisions, we're getting a clear picture of a strengthening recovery beyond today's headline. The margin of error for each jobs-added figure is 100,000 jobs. The BLS's initial estimate for August was 96,000. Then it was revised to 142,000. Now it stands at 192,000. So, should we ignore today's news? Not so fast. 170,000 isn't just October's first estimate. It's also our new three-month average. And it's considerably better than the year's average. Things are getting better faster.

Where is this new-look recovery coming from? It's coming from the beginning of a real housing recovery and the end of government austerity. In 2010 and 2011, the economy lost 477,000 public sector jobs. This year, we've added 20,000. That's made a huge difference.

"Everything about this report is great news" economist Justin Wolfers tweeted this morning. And he's basically right. But just as one bad report changes very little, one great report changes very little. Big picture: We've added about 3 million jobs since the economy started to recover in June 2009. But we're still down another 3 to 4 million jobs since the economy started to contract in December 2007. In 2012, we're creating 150-some thousand jobs a month -- the same as in 2011, with practically the exact same GDP growth.

Bottom line: Whoever wins on Tuesday inherits an economy that is still awfully weak and a jobs recovery that's clearly gaining momentum.

Like millions of people along the East Coast, my work has been disrupted by the storm. Here's how I coped. What about you? Leave your story in the comments section.

Since Hurricane Sandy thrust millions of east-coast workers back into the 19th century -- no lights, no Internet, sometimes not even water -- pay phones are the new smart phones, Starbucks outlets have become the most valuable real estate in New York, and "the office" now means "anywhere I happened to find an Internet connection."

Since I packed a small bag and escaped a dark apartment deep in the heart of the Con Ed blackout, I've spent the last 48 hours as a nomad on the Upper East Side and Brooklyn, bumming coffee, Internet, and pillows from friends whose technology survived the hurricane.

When I'd written about the future of telecommuting before, I talked about working from home as a viable choice for digitally savvy people. But now that I'm digitally desperate, working from (somebody else's) home isn't a choice. It's the only option. 

And I might be looking at the future. Mass telecommuting is a vision that appeals to environmentalists (less driving), urban planners (more mixed-use development), technologists ("Disrupt the Office!"), and tens of millions of people are who simply are exceptionally lazy. Only one in twenty formally employed Americans works consistently from home, according to research I've found, but as many of us are finding out today, lots of jobs that are hardly ever done remotely are fairly receptive to telework. As more work moves online, more jobs can be mobile. The Information Technology & Innovation Foundation predicted in 2009 that the number of jobs filled by telecommuters would grow nearly four-fold before 2020.

So how do you make working from home work? I want to hear your answers in the comment section below. My strategy boils down to recreating a routine. I work well when I don't have to think about anything except for the work. That means situating myself in a familiar-enough-seeming place with the few things I need to get things done and nothing more.

(1) Strong coffee: I'm an addict, so, sadly for me, coffee comes before everything else, both chronologically and preferentially. Something strong. If not strong, then very large. Starbucks has been closed throughout Manhattan, and when I saw one open in Astoria yesterday, my reaction was one of such rare and authentic delight, I feel pretty embarrassed about it, in retrospect.

(2) Strong Internet: If all you need is a word processing software and a few links from the Internet, a typical coffee shop connection should be fine. But if you're uploading and downloading documents and presentations, stay home or find a home where you're not sharing a weak connection with 20 other people on a buggy AT&T network at Starbucks. There is nothing more annoying than telling the people you work with that you're on the grid and then cutting out of GChat every five minutes minutes because the connection fails (just ask my colleagues).

(3) Few distractions: Find a place with a consistent volume. Noise doesn't distract. Variations in noise distract. So quiet is good. The steady hum of a small restaurant or coffee joint works, too. Not so good: The apartments of friends you've wanted to see for a while and used Sandy as a convenient excuse to do so. I typed this article from an Upper East Side apartment where the roommates were playing a boisterous game of Trivial Pursuit. My verbal-processing was hopelessly scrambled: Hmm, what's a word that means refugee, but softer ... "Dude, how many throwing events in the decathlon?" "Did you get javelin?" "Hammer throw!" "No that doesn't exist" ... wait, what was I writing?

If you were displaced by Hurricane Sandy, how have you recreated your work environment on the fly? Include your profession, if you can; I think the differences between jobs and duties are interesting. And everybody else: If you work from home, how do you make it work? Leave your stories in the comment section.

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The largest U.S. companies are seeing a scary decline in demand, while U.S. consumers are on a "spending spree." What the heck is going on?

Economic confidence is higher than at any time during Obama's presidency. The unemployment rate is lower than at any time during Obama's presidency. The housing market is flashing recovery signals. GDP growth isn't great, but it's accelerating.

Just as we did before the recession, U.S. consumers are living outside their means and loving it.  "Personal income has not been supportive of personal consumption during the past several months," Eugenio J. Alemán, a senior economist at Wells Fargo, writes. In other words, Americans are spending more than they're making. Basically: U.S. consumers are getting cocky. And cocky consumers are good for a weak economy.

Then earnings season smacked Wall Street's optimism, with big industrials leading the blood bath. Two-thirds of 245 firms surveyed by Factset had worse-than-expected sales -- the lowest figure since early 2009. In the following graph, the industries on the left (financials, information technology) beat expectations and those on the right (industrials and utilities) disappointed.

The household story and the Wall Street story seem to be in conflict. But what we're really seeing is a strengthening U.S. recovery and a weakening global economy. The companies that rely exclusively on U.S. demand are poised for a good string of quarters. The companies that rely more heavily on demand from the rest of the world -- especially Europe and China -- just took a hit.

That's oversimplifying things, but only a little. For companies that rise and fall on global demand [e.g.: Caterpillar, GE, Microsoft], sub-2.5% global GDP growth is a bummer. Too much house and too much debt got us into the crisis ... but, ironically, more houses and more debt are the ticket out of the non-recovery. The world could use a dose of our overconfidence.

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Disney just bought the mother of all money-printing machines


Movie stars aren't the most valuable thing in Hollywood. Neither are whip-smart screenwriters, superstar directors, or deep-pocketed producers. The single most valuable thing in the movie business is owning popular content with a great track record and the possibility of future sequels. That's where the money is.

And that's why Disney is on a Popular Movie Franchise Spending Spree. In 2006, it paid $11 billion for Pixar. In 2009, it paid $4 billion for Marvel. And yesterday, it paid another $4 billion to acquire Lucasfilm and the right to continue the Star Wars franchise into the future.

Will the next Star Wars movie be any good? Who knows. But knowing what we know about the state of the movie business, this was a smart buy for four reasons.

(1) THE POWER OF SEQUELS

Hollywood is in the business of buying attention. But attention is a hard thing to buy when you're working from scratch: Original stories are much riskier than sequels. Indeed, the only movie in the top 30 all-time top-grossing films that isn't a sequel or adaptation is James Cameron's Avatar, which is basically "Future 3-D Pocahontas." 

In 2011, 14 of the top 15 movies in the U.S./Canada were sequels and adaptations (all but Bridesmaids):


Buying a historic franchise with proven success and the option to make more sequels and adaptations is like buying a money-printing machine for movie studios. With Marvel and Pixar and LucasFilms, Disney now owns some of the most dependable franchises in movies -- especially for young movie-goers. As Barclays Capital analyst Anthony DiClemente said, the Lucasfilm deal "continues Disney's well-worn strategy of acquiring valuable intellectual property and monetizing it better through its global, multi-product distribution engine."

(2)THE POWER OF MOVIES THAT LIVE BEYOND THE THEATER:
 
The largest source of revenue for studios isn't U.S. box office. It isn't foreign box office, either. It's television. It's deals with cable channels and companies that rent/stream/sell movies companies that people watch on their TVs and iPads.

About 80% of studio revenue comes "from the ubiquitous couch potato viewing his movies at home via DVDs, Blu-rays, pay-per-view, a digital recorder, cable channels, or even network television," Edward Jay Epstein wrote in his book The Hollywood Economist. Between 19 and 20 in 20 households own a television. One in 20 households attends the movies any given weekend. The business of movies is in home entertainment.

That's what makes the Star Wars franchise extra lucrative. Its value isn't confined to movie studios. It sells merchandise and network marathons. 

(3) THE POWER OF THE AMERICAN TEENAGE AUDIENCE

If you thought that all big movies these days seemed aimed at teenagers, then congratulations. You are perceptive.

Even with total movie attendance flat or falling, Americans between 12 and 24 attend twice as many movies as 40- and 50-year-olds, according to the Motion Picture Association of America. Not only does Star Wars appeal to adults on the couch at home, but also it appeals to the sweet-spot of the national box office.

"For about the same purchase price [as Marvel], Disney is buying another big, young male skewing franchise to expand its diversification from young females," Lazard Capital Markets analyst Barton Crocket said.

(4) THE POWER OF LUCAS GLOBAL 

In the U.S., movie ticket sales are falling and box office revenue is flat. But overseas, both are soaring. "International box office in U.S. dollars is up 35% over five years ago," the MPAA reports. 

Star Wars has a lot of room to grow overseas. George Lucas was great at building one of the most popular movie franchises in American history. Disney is great at building international brands. Together, analysts think they can take Star Wars global, boosting revenue from box office, TV licensing, and merchandise. Per Crocket: "Lucasfilm's $215 million in licensed merchandise fees is comparable to pre-acquisition Marvel, but has more room for a Disney boost from insourcing and expanding international as Lucas' mix is under 40 percent international versus Marvel's over 40 percent."

The European Union isn't blowing apart with quite the same fireworks as a few months ago, but here is your necessary weekly reminder that things are a long way from getting better across the Atlantic.

In Spain and Greece, 25% of workers are still unemployed and more than 50% of young workers are still out of a job. Those numbers aren't falling, or even stabilizing. They're growing by leaps and bounds with each new report out of Europe. Greece's unemployment rate climbed a whopping eight percentage points since July 2011, according to Eurostat, and Spain kept pace, stretching its official unemployment rate to a continent-record 25.8%. Both countries are in a recession and both rates will probably get worse before they get better.

Meanwhile, inflation continues to fall for every major component: food, energy, industrial goods, and services.

There's a saying among companies, especially start-ups, that the metrics you pay most attention to move in the direction you'd like, so, the key is focusing the right metrics. It's the same with central banking, really. For most of this crisis, Europe's central bankers fixated on inflation when the real problem for European countries in the periphery -- e.g.: Greece, Spain, Portugal -- was falling growth and rising unemployment. Rather than risk a dose of inflation to help their competitive, the strongest countries in Europe, led by Germany, administered austerity and watched their neighbors shrink and protest and burn.

In September, the European Central Bank finally announced its plan to save the currency by promising to buy unlimited debt to push down interest rates in troubled countries. They've succeeded, in a way. Ten-year bonds in Portugal and Spain are sliding. Meanwhile, unemployment is rising and growth is contracting. Fixing rates was the easy part. It required a promise. Fixing the real economy is the hard part. It requires real money.