Derek Thompson

... and more lessons from the PayScale Index released this morning

When we write about the economy, too often writers and analysts (myself, included) write as though there is one national economy moving forward or backward at a single speed. Nothing could be farther from the truth. In a North Dakota boomtown, mining companies are begging for workers, and wages are climbing. In Riverside, where housing prices have fallen more than 50 percent from their 2006 peak, unemployment is kissing 12 percent and wages are still falling.

One of the best ways to visualize the diversity of the U.S. economy is the PayScale Index, which tracks wages by metro and occupation over the last year. Here is the pay growth story by industry (click to enlarge)...

... and by metro (click to enlarge) ...

That's not a typo. According to PayScale, Riverside wages are still collapsing, five years after their housing prices peaked.

To see how pay compared to the national average by city and by industry, we rounded up these graphs, which PayScale kindly shared with The Atlantic. First the graphs, then some analysis and context (Important graph-watching note: The PayScale index measures income growth with a year-2006 base of 100. The fact that LA's line is lower than Houston doesn't mean LA wages are lower than Houston, but rather that Houston wages have grown more since 2006):

Not even these breakdowns capture the full diversity of the multi-speed economy, but they bring into focus a million little parts under the hood of the "national economy," illustrating a few trends we already know:

1) Houston vs. Riverside. Houston is booming. Riverside is still busting.

These are the polar ends of the multi-speed recession, and the story begins with housing. In Houston, where housing prices have fallen 11 percent from their peak in 2009, gross metropolitan product has led the 100 largest metros in the country. By contrast, Riverside, in which housing prices have fallen 55 percent from their peak in 2006, ranks among the ten worst metros in the country in unemployment and GMP change. Houston's reliance on energy has served it well in the last few years, while Riverside's real estate collapse has made it the poster-child of the post-bust depression city.

2) Food services and retail. What does it say about the economy that cheap jobs in food services and retail got even cheaper in the recession? One explanation is that unemployment has been so high among young and under-educated Americans that there's a surplus of desperate workers that could do these jobs. As with anything else, where supply greatly exceeds demand, prices drop. In this case, pay was the price. That leads us to number three...

3) Manufacturing wages had to go down before they went up. You can see in the gallery above that manufacturing wages fell after the Great Recession but have just begun to perk up. This jives well with our understanding of the manufacturing economy. Gutted in the 2000s and again by the Great Recession, manufacturing jobs have actually enjoyed a boomlet in the last two years. Fully 300,000 of the 2+ million jobs added February 2010 (the nadir of unemployment) have come from manufacturing, and the Institute for Supply Management, which surveys American manufacturers, has been in positive territory for most of the year. One thing that made this boomlet possible is that the fact that manufacturing wages have declined while productivity increased, making U.S. manufacturing more competitive with the millions of factories overseas.

More »

Should colleges be required to prominently post consumer information for prospective students in a report card or "nutrition label" for higher ed? That was our latest question to you in "Working It Out," our collaborative, crowd-sourced column about work and economics. And boy, did you ever respond -- on our site, on college discussion boards, and in our 1,000-person online poll from Toluna.

There's a deep divide. In the pro camp, students and professors argued that schools had an obligation to be more forthcoming about likely outcomes from a college investment. They called on schools to publish specs like debt-after-graduation and earnings-by-degree. In the anti camp, we heard most loudly from people who consider the college experience unquantifiable and easily perverted by simple metrics.

Here are the ten best arguments from our most-commented "Working It Out" feature yet:

The case for a college report card is compelling

Compelling reason #1: students already owe $1 trillion in nondischargeable, government-guaranteed student loans.

Compelling reason #2: the data reported to US News is almost never audited, and there is much temptation to game the rankings.  U. of Illinois U-C Law School, Villanova Law, and Clemson University are three recent institutions that have been caught red-handed sending false or altered stats to US News.

Another data point to include: the number of graduates in grad school within five years.  At first blush, a high percentage may seem great, and on occasion, it is.  However, as a grad of a very highly ranked liberal arts college that routinely claims that 70 - 80% of recent grads have pursued an advanced degree, I can assure the readers that probably 2/3 of those grads are doing so because they can't find any jobs with their UG degrees (the rest, to their credit, are in med school or a top Top TOP law or biz school - which are still hardly sure bets these days).  If someone comes out of, say, Colby or Haverford with only $20k in loans, but gets their hat handed to them in the job market and consequently trots off to law or biz school where they might come out with $200k in loans, what is the true cost of their undergrad institution?

More college reports just means more college spin

Why should this be mandated? What's the compelling reason for government forcing colleges to provide this information, as opposed to a private entity?

There already exists one such (albeit imperfect) from a private entity - U.S. News College Rankings.

The best reason I can think of is to improve student loan performance - i.e. to try to lower the default rate by giving students more information. I would argue, however, that the Dept. of Education should do this, since they almost certainly have all the relevant information. They can start a website where students can look up the pertinent information for the college of their choice. Don't force the colleges to do it. They will try to spin the results.

Graduation rates miss what college is really about

If treat higher ed. institutions like producers of tangible products than we will lose the true value of these institutions. True academic growth is too difficult to wrap into an easy-to-understand metric. Obviously we are moving towards greater assessment; and I support an informed consumer, but 4-year graduation rates and employment rates are hardly meaningful measures of human development.

We pay for all products, reasons Mr. Nemko [the author of the kick-off post], therefore all the things we pay for are products. In slightly more technical terms, he's asserting the simple converse of a universal affirmative -- a major, if common, logical no-no. The comparisons he draws make his reasoning evident: a university education is the equivalent of a tire or a bag of Doritos.

But much of what we spend from day to day goes to pay not for products but for services: a ride across town, a parcel delivered intact and on time, a lawn mowed. These things defy Mr. Nemko's nutritional labeling scheme because they are not interchangeable, mass-produced items. My lawn is a different size and shape, plus it occupies a different terrain, from someone else's lawn. In the same way, my mind is not the same as your mind, so my experience of a particular school will be different than your experience of the same school. Attempting to quantify "how much" of something we got out of that experience devalues what we had onboard when we arrived and the decisions we made while we were there. Not to mention the variability inherent in a large university setting, where one student's experience of a particular course is phenomenal while another student taking the "same" course at the same time from another professor is underwhelmed. Both experiences are relevant to a prospective student, and both are equally "true" as a reflection of what to expect, but neither could be individually quantified, much less their relative contributions to the functioning of an institution as a whole.

So how would we evaluate education as a service? Much as we currently do, I'd imagine: visit campuses, sit in on classes in session, survey programs of interest, chat with current students, talk to graduates new and old, count the cost. Then decide.

At the moment of cost counting, however, I agree with Mr. Nemko. Clear communication of total and itemized cost projections for each student, including anticipated financial aid, should come standard. Some schools are already there. More should be.

I welcome labels like this. My university would do very well if they were used. Our tuition is low ($6k/year), the costs of living here are relatively low, and we create a lot of opportunity, economic and otherwise. This is partly because Fresno is one of the poorest and least well-educated communities in the U.S.A.

Most of my students are going into engineering, K-12 teaching, and the health sciences. Still, whenever I get one interested in an abstruse, competitive field like astronomy, I hand them a copy of "A Ph.D. is Not Enough," by Peter Feibelman. This is because I want my students to know exactly what it is they're getting into, how few jobs there are, and how important it is to have a viable Plan B. (Would-be astronomers can make far more money with less aggravation in computing and energy.) The result is that my students are absolutely sick to the teeth of me telling them this.

I won't waste my time arguing that education is not a commodity and students are not passive consumers, since you and so many of your posters are clearly of the mindset that both are true. So, let's look at all of the "nutrients" that need to be listed. "Student-to-teacher ratio," "Tenure-track to adjunct faculty ratio," "Availability of upper division courses/electives in each major," "Staff-to-faculty ratio,"  "Amount spent on library resources (print and electronic) per student," "Amount spent on laboratory equipment/computers/etc., per student," "Placement rate of graduates looking for a job," "Average GRE/LSAT/MCAT, etc. score of graduates," "Acceptance rate of students applying to graduate school," "Sources and amount of funding -- state funding, federal funds, private donations, research and other grants." And let's not forget, "Average number of hours per week students spend in class," and "Average number of hours per week students spend doing homework (including reading the assigned material."

If they do not recognize the substantial benefits of doing so voluntarily, colleges should be required to open up their alumni databases to the Center for Alumni Satisfaction & Outcomes Research (http://www.alumnisatisfactionr... so that that non-profit organization can carry out further surveys with recent college grads and in the process give college intenders, their families, and counselors access to a category of information that is at least as relevant to the consumers of higher education as it is to the purchasers of cars, homes, and other high value products and services.

With the food manufacturer in jeopardy, let us consider the wonderful international complex behind the making of the Twinkie
The Twinkie is indestructible (or so we're told), but the imperishable treat's maker is in danger of succumbing to that most common of economic forces: Health care and pension costs.

Hostess Brands, the maker of Twinkies, Ding Dongs, and Wonder Bread, announced that it is filing for bankruptcy for the second time in less than ten years due to expensive legacy pensions and medical obligations for its 19,000 employees in 49 states. Deep in debt, Hostess is also forced to weigh the rising cost of ingredients against falling demand for its sticky treats. Last year, inflation for sugar (21%) and wheat (69%) took ingredient costs to all-time highs while Twinkie sales declined by 2%.

This might easily turn into a story about unions and benefits, but I'd rather reflect on the indomitable Twinkie, itself, which is as much a symbol as a food (and if you ask certain people, it's barely the latter). In this archetype of processed snacks, enriched bleached wheat flour, sugar, water, eggs, and corn syrup combine in high-tech dance of food processing to make a "golden sponge cake filled with creamy filling." Sounds simple enough. It's not.

COMPREHENDING THE TWINKIE

Twinkies come from the verdant tree groves and golden wheat fields of the world. Kinda.

Cellulose gum harvested from trees goes into the white filling. Corn dextrin made from maize (same as the glue you lick on the back of envelopes) gives it a sticky coating. And the delicious-sounding Polysorbate 60 gives the goo a particular, well, gooeyness.

"The Twinkie comes from an international industrial complex," says Steve Ettlinger, author of the book Twinkie, Deconstructed: My Journey to Discover How the Ingredients in Processed Foods are Grown, Mined (Yes, Mined), and Manipulated Into What America Eats.

To bake a cake requires flour and an oven. But to build a cake empire, as Hostess did, requires technology and a vast distribution network (whose very size is ironically weighing on the company). That makes the Twinkie the blond, spongey child of a food manufacturing revolution that started with the industrial revolution. As Ettlinger wrote:

Over the years, wars and politics, as key events in history played key roles in inspiring the development of things like the modern, mechanized flour mill, baking soda, baking powder, artificial colors, artificial flavors, corn syrup, sorbic acid, and polysorbate 60 by forcing manufacturers to find alternative or better sources of sub-ingredients.  And these are all ingredients that make the modern Twinkie as well as all processed food possible. 

Late Twentieth century mastery of technology, coupled with the enormous post-World War II consumer demand for convenience and variety as family life became more fractured by demands of the workplace and leisure activities, pushed food scientists and the food companies to even higher levels of creativity that affect almost everything we eat, well beyond a simple snack cake born in the Depression. 

Today you can best appreciate the awesome complexity of the Twinkie by looking at the first ingredient on the back of the baggie: Enriched Bleached Wheat Flour.

"You would think that being wheat, it would be natural," Ettlinger says. "And it is, in a way. The Twinkies we eat in New York are made from wheat grown in the mid-Atlantic states. It's almost local!"

But pay attention to those first two words: Enriched and Bleached. Enriched means vitamins have been added, like B1, B2, and Niacin. The bulk of these vitamins come China, Ettlinger says. The Niacin is likely made in Europe. The process of enrichment was mandated by the U.S.  government in the early 1940s to ensure that more vitamins ended up in people's foods. The bleaching is done with chlorine gas, which is considerably more local than the vitamins, since chlorine is so toxic, you don't want to have to move it long distances.

Bleaching wheat does three important things. First, it oxidizes wheat to prevent it from spoiling. Second, it weakens the protein to make the dough soft. Third, it whitens the wheat. "There a general assumption among food makers that the public thinks lighter-colored foods are better," Ettlinger told me. "People relate to the blondness of the cake."

Understanding the first ingredient of Twinkies goes a long way toward understanding the deeper meaning of the Twinkie within the food manufacturing industry: It's international, it's complex, and it's as much a gizmo of technology as a piece of food. The food-processing industry in the U.S. is responsible for some $400 billion of sales each year, but its benefit for hungry Americans goes beyond manufactured tastiness. By turning food into a manufactured product, companies have been able to hold down the cost of our snacks even as food inflation lurches every quarter. The cheap and indestructible Twinkie is a miracle of science, coordination, and cost-control on the part of Hostess. If only health care and retirement policy were so easy.

This is the central economic debate of the 2012 contest: How do we encourage the winners of an unpredictable economy? And how do we protect the most vulnerable and build a sense of security and opportunity for all Americans? Our ever-efficient economy is pretty good at answering the first question. This election will decide whom Americans think will do a better job answering the second.

Last week, Rick Santorum become the latest prominent Republican to complain that poor people weren't paying enough taxes. Following in the footsteps of Michele Bachmann, the 53 Percent movement, and Fox News, he said that the most important class distinction was between "anybody that makes money and pays taxes and everybody who doesn't. That's the 99 [percent]."

The real stat he's looking for is more like 50 percent. That's the share of U.S. households that owe no federal income tax, which accounts for less than half of total federal taxes.

Who are the 50 percent? They are the bottom 50 percent. More than half of the folks who pay no federal income tax make less than $20,000 last year. Nearly 80 percent of the group made less than $30,000.The piechart below, made with data from the Tax Policy Center, breaks down the households that don't pay federal income tax. All numbers are in thousands of dollars (i.e.: the "20-30" slice represents all households making $20,000 to $30,000).

Half the country being spared from federal income taxes might be fair, it might be unfair, but it is certainly deliberate. Republicans and Democrats spent the last three decades cutting tax rates and adding deductions for the explicit purpose of kicking the poor off of federal income tax rolls. For leading Republicans to complain about the development today -- even as the party unites around more tax cuts for the richest -- demonstrates a selective amnesia about recent GOP tax policy.

President Ronald Reagan repeatedly praised plans for booting the poor from federal income taxes. Here are examples collected by Center for American Progress intern John Craig and forwarded to me by Seth Hanlon, the director of fiscal reform at CAP.

Reagan criticizing the tax laws he inherited for raising taxes on the poor: "The Census Bureau confirms that, because of the tax laws we inherited, the number of households at or below the poverty level paying Federal income tax more than doubled between 1980 and 1982. Well, they received some relief in 1983, when our across-the-board tax cut was fully in place. And they'll get more help when indexing goes into effect this January." Remarks Accepting the Presidential Nomination at the Republican National Convention in Dallas, Texas, P. 55 Showdown at Gucci Gulch, (August 23, 1984).

Reagan praising his tax reform for freeing families in poverty from taxation: "The tax system should not be an additional burden to those who are struggling to escape from poverty; insofar as possible, those below the poverty line should be freed from taxation altogether. By raising the personal exemption, the "zero bracket amounts," and earned income tax credit, and by expanding the credit for the blind, elderly, and disabled, the President's proposals would:(1) assure that virtually all families at or below the poverty line would be free from taxation; and (2) assure that virtually all older, blind, or disabled Americans at or below the poverty line would be freed from taxation." Reagan's 1985 Tax Proposal, Summary p. 5

Reagan promising in his 1985 State of the Union address to make families "living at or near the poverty line ... totally exempt" from federal income taxes: "To encourage opportunity and jobs rather than dependency and welfare, we will propose that individuals living at or near the poverty line be totally exempt from Federal income tax. To restore fairness to families, we will propose increasing significantly the personal exemption." Address Before a Joint Session of the Congress on the State of the Union (February 6, 1985)

Reagan characterizing his plan to make poor families tax free as "pro-family": "Under our profamily plan, a family of four won't have to pay a single cent of tax on their first $12,000 of earnings. So, really, it's more than a 3-bracket system; we've got a fourth bracket -- zero." Remarks at a White House Meeting With Reagan-Bush Campaign Leadership Groups (October 7, 1985)

And here's President George W. Bush ten years later promising to remove millions of families from income tax rolls: "A tax rate of 15 percent is too high for those who earned low wages, so we must lower the rate to 10 percent ... People with the smallest incomes will get the highest percentage of reductions, and millions of additional American families will be removed from the income tax rolls entirely"

These quotes don't prove that Presidents Reagan and Bush were right. They don't prove that today's Republicans are wrong. The proper effective tax level for income groups in an age of deficits is a separate debate. What these quotes do prove is that for the last 30 years, the GOP (with plenty of help from Democrats) has stated that families living near or under the poverty line should not have to pay federal income taxes. Today's weird GOP obsession with raising taxes on the poor while other Republicans promise $500,000 tax cuts for the rich is not only a tone-deaf display of supply-side economics ad absurdum, but also a dramatic departure from very recent history.

More »

This morning, Mitt Romney wrapped up a speech to the Nashua Chamber of Commerce in New Hampshire with the following passage about health care reform:

ROMNEY: I want people to be able to own insurance if they wish to, and to buy it for themselves and perhaps keep it for the rest of their life and to choose among different policies offered from companies across the nation. I want individuals to have their own insurance. That means the insurance company will have an incentive to keep people healthy. It also means if you don't like what they do, you can fire them. I like being able to fire people who provide services to me. If someone doesn't give me the good service I need, I'm going to go get somebody else to provide that service to me.

And across the country, one could hear the faint sound of political reporters weeping for joy.

But let's be reasonable for a moment. It's quite clear that what Romney was trying to say was that consumers like firing service-providing companies, not people. (It doesn't make any sense, the other way. I can switch from Chase from Visa, but I don't have the ability to fire a Chase service representative.) It's a fitting gaffe for Romney, considering this is the candidate who claimed under different circumstances that companies and people are one and the same. It's also revealing, in a way that should alarm the Romney campaign, that their candidate likes to talk about consumer choice with terms like "fire" that feel too appropriate for a private equity executive whose job required him to lay off thousands of people.

But that's all politics. Onto the policy: Let's take the argument around his gaffe seriously. What Romney is arguing here is that our health care system should be more consumer-focused and that individuals should be able to switch their insurance company more easily. "I want individuals to have their own insurance," Romney said, with the all-important caveat: "if they wish to." What Romney is calling for is a market-based approach to health care without a universal mandate.

Romney says "the insurance company will have an incentive to keep people healthy." That's not true. The insurance company, as Romney knows, has an incentive to make a profit. One way to make a profit is to have way more healthy clients than sick clients. But that's not the easiest way. The easiest way is to rescind coverage when your healthy clients get sick, or to refuse coverage or discriminate on the basis of preexisting illnesses to ensure your group has only healthy people. Without regulation to prevent insurers from discriminating against or pushing off the sickest policyholders, healthy patients would all belong to cheaper plans and sick people would all get stuck in the same insurance program that death-spirals toward bankruptcy.

An individual market that moves away from company-defined health care requires group-underwriting regulations to prevent these kind of death spirals. But once we require insurance companies to accept all comers, we risk driving up premia unless we also compel all adults to buy health insurance whether or not they're sick. Otherwise, all healthy people could abstain from insurance until they contract an illness, knowing the insurance companies would accept them. Thus, you have the case for an individual mandate to make up the third leg in health care reform after government regulations and an "exchange" market for individuals.

Romney wants to give families the power to choose and fire insurance companies. That's commendable. It's also unworkable in a market where "people [only] own insurance if they wish to." That's the real gaffe from this morning.

Is the U.S. "better" than Sweden, or "happier" than Denmark? It all depends on what you value.

Reuters

This week we published a big article on the OECD's recent comparison of work-life balance in 23 developed countries. There are two criticisms in the comment section that are worth visiting -- whether or not you happened to read the piece.

First, people said the three variables OECD used to calculate work-life balance -- overtime hours, leisure hours, and share of mothers who got back into the work force -- weren't sufficient to fully capture the ultimately unquantifiable measure of work-life balance. True enough! Different cultures have different ideas about what is the proper balance between work and life. Who's to say that 50 hours a week is overworking? What if Italian mothers prefer to stay home after they have kids? Is the earned income tax credit good because it encourages higher employment, or bad because it makes families work for their welfare? All good questions. National values differ by nation. More on that in a second.

The second question I'd sum up as: How come these studies keep hating on the U.S.? America ranked 23rd out of 34 in work-life balance, particularly because of our underinvestment in family welfare. Scandinavia and the rest of northern Europe dominated the top ten. The United States, the greatest country in the world, doesn't crack the top 15 in most of the OECD's rankings.

Readers shouldn't come away with the impression that the OECD rankings exist exclusively to make Americans feel crappy about ourselves. We rank in or near the top five in income (second only to outlier Luxembourg), housing (a measure that includes rooms per person and basic amenities), governance (don't tell Congress), and education. We beat Germany in self-reported health and life satisfaction. We beat Sweden and Denmark in education, income, and housing. We're doing alright!

The most important aspect of the OECD Better Life Initiative online is an interactive tool that lets you rate one-to-five each of the survey's variables. If you rate money and housing space over all else, it turns out that U.S. really is number one! (Oh, forget you, Luxembourg). If you reduce income and room space's significance and instead make air pollution, life expectancy, and homicide rates your most important criteria, the outcome looks totally different: Australia, New Zealand, Canada, and Sweden become the highest-rated countries in the world.

So, is the U.S. "better" than Sweden and Canada? It all depends on the variables you value. That the U.S. is ahead in income and housing and behind in environment is the result of the geographic hand we've been dealt and the choices we've made. The U.S. is an enormous country that borders Mexico, and while you could say that we chose to make it big by fighting for and buying all this land in the 19th century, we don't really have an option to move or shrink the country. As a result we have much more space on which to build homes, and drive between suburbs, than, say, Switzerland. We also have a much healthier flow of immigration. As a result, we score better on home size and population growth than most of northern Europe, but also worse on pollution on account of all the energy it takes to move around this big space.

On the other hand, we explicitly chose to not build a universal health care system and we tied the big health care subsidies to employment. Perhaps as a result, we score lower on health. We chose to subsidize oil and gas and not pass a carbon tax or raise the gas tax. Perhaps as a result, we score lower on pollution. We also chose to tie more welfare to the tax code, which meant families have to work (or show they're trying to work) to get their welfare support. Perhaps that incentive to work is why we score lower on work-life balance.

It's not that these choices are right or wrong. I have my preferences, and so do you. It's that there were choices we made, and the strengths of the U.S., even in these oversimplistic international surveys, reflect the strengths that we've imbued in it -- at the ballot box, in our communities, and on Capitol Hill.

Is college worth it? If I had to limit my answer to one word: yes. For every rung you climb on the education ladder -- from high school, to community college, to four-year university, to doctoral degree -- unemployment for your group goes down and wages go up, as illustrated in this BLS graph:

But that's a 30,000-foot answer. Zoom in, and the complications come into focus. Many community colleges are drop-out factories. Are they all "worth it"?  Many schools offer simplistic curricula and their degree amounts to a meaningless, expensive stamp on four wasted years. Are those schools all worth it for every career? Even among the top 50 schools, middle class students often graduate with $20,000, $30,000, even $50,000 in debt. That won't always be a smart price to pay for someone who wants to be an actor, or writer, or construction person, or manufacturing worker, or even software engineer. Even if college protects earnings opportunities in these fields, are the early debt and forgone late-teen earnings worth it for each one of these workers?

That's an impossible question to answer. So the Georgetown University Center on Education and the Workforce does the next best thing. It breaks down employment and earnings by college degree to make the point that not all college degrees are equal, and the major you take greatly influence the money you make. Here are the key graphs of unemployment rates and college earnings by degree, both for recent graduates.

UNEMPLOYMENT RATES BY DEGREE

Is this information useful? Absolutely. Investment require information. (See our piece: Do Colleges Need a Calorie Count?) Higher ed is a $100,000 investment, or much more. But many families and students make their choice based on low-grade data, like "the campus felt too sprawling" or "the dorm rooms were pretty." Education is experiential, and experiential information should come into play. But families would benefit from more data about real return on investment, like median debt upon graduation, and earnings and employment by degree. This survey is a worthy data point.

But are employment and earnings by degree the most important factors in choosing a college? Absolutely not. First of all, mushy as it sounds in an economics post, happiness matters. To the furthest extent possible, you should do what you want to do, not only in college, but also in life. Second, employment and earnings statistics are variable. Real estate was all the rage in 2003. But four years after the housing bust, it won't surprise you to learn that architecture majors now have highest jobless rate among recent college graduates at 14%, nearly three times higher than for Information Services Majors. Or poll business school grads from 2000 or 2008 how flooding into finance worked out. Stats are moving targets.

Does that mean you shouldn't major in architecture today? Once again: Absolutely not! If you want to design houses and commercial buildings, an architecture degree would be a nice thing to have. Who knows, maybe the economy will be at your back by the time you hit peak-earnings age. (Housing starts just hit an 18-month high, and in some states, there is arguably a shortage of homes.) College is an investment, and when you make an investment, you should consider all the data. But don't let the economy pick your major for you.

More »

The U.S. economy added 200,000 jobs in December, and unemployment fell to its lowest point in three years. And yet...
Calculated Risk

The last jobs report of 2011 was perhaps the year's best, with moderate improvements everywhere, from overall employment to earnings. It's not great jobs report, mind you. But in a lukewarm year for job growth, it's a sign that the economy is getting warmer.

All the good news in one paragraph: We added 200,000 jobs in December -- 50 percent better than our monthly average last year. The official unemployment rate fell to 8.5 percent, the lowest in three years. The broader measure of unemployment, which accounts for marginally attached workers, fell to 15.2%, the lowest since Feb. 2009. For the full year 2011, the U.S. economy added 1.64 million jobs, our best in five years. Average hourly earnings were up. Weekly hours were up. Discouraged workers have fallen by more than 370,000 in the last year.

That's the good news, and it's illustrated by the bright red line in the graph below. But here's the problem. The unemployment rate is falling in large part because millions of people have dropped out of the labor market entirely. That point is illustrated by the black line below, which tracks the fading employment-population ratio. If the size of the workforce were the same as when Obama took office, the unemployment rate would be 10.9 percent.

When the strengthening economy attracts more job seekers, the unemployment rate will go up. It's just math. If the denominator (the size of the labor market) starts growing, we'll need the numerator (the number of employed people) to grow much faster to compensate. If I'm wrong, and the participation rate doesn't go up, it will represent a kind of permanent shadow-group of people neither working nor counted as unemployed.

I like to end these jobs reports with a graph from the Hamilton Project that shows how long it would take to make back the jobs we lost in the Great Recession at various rates. If we create 200,000 jobs a month, as we did in December, we'll fill the jobs gap by about 2024.

The simplest way to conceive of Mitt Romney's tax proposal is the Bush Tax Cuts on steroids. It's not sweeping tax reform. The rates don't change. The deductions stay put. Instead, it's a time machine back to 2008 ... with a big pair of scissors to make some additional cuts.

The GOP frontrunner would permanently extend the Bush/Obama tax cuts in addition to eliminating both the estate tax and the tax on capital gains for "non-rich" families. He would not extend the majority of the tax cuts and tax hikes passed in the Obama administration.

This is Mitt Romney's tax plan in five steps, as analyzed by nonpartisan Tax Policy Center:

1) Permanently extend the Bush/Obama tax cuts

2) Cancel almost all the tax breaks passed under Obama, including: the American Opportunity tax credit for higher education, the expanded refundability of the child credit, and the expansion of the earned income tax credit, and the surtaxes on high-income individuals imposed by Obamacare

3) Eliminate tax on long-term capital gains, dividends, and interest income for households under $200,000

4) Repeal the federal estate tax, while continuing the gift tax with a maximum tax rate of 35 percent.

5) Reduce the corporate income tax rate from 35 to 25 percent and make the research and experimentation credit permanent

For a family making less than $10,000 a year, the average tax bill would go up by $112. For a family making more than $1,000,000 a year, the average tax bill would go down by about $145,000.

This is Romney's effect on after-tax incomes across all income groups (positive numbers reflect after-tax gains as a share of income, while negative numbers reflect a tax increase). All numbers along the X-axis are in thousands of dollars.

One word of caution about this graph. Looking at average after-tax income as a percentage is probably the fairest way to judge a tax plan's effect on households. But Romney's plan has a surprising amount of variability within these brackets. Take, for example, the families making less than $10,000 a year. About 11 percent of them would get a tax cut, 17 percent would get a tax increase as high as $700, and 75 percent would see practically no change. So while the average tax hike comes out to $112 (or 1.9 percent of their income), that disguises the fact that most low-earners wouldn't see their taxes change significantly. On the other hand, more than 90 percent of families making more than $200,000 would get a tax cut worth thousands of dollars.

What's behind the numbers? The most important tax change for lower income families is Romney's repealing the expanded child credit and earned income tax credit. For richer families, the permanent extension of the 2001/2003 tax cuts and the repeal of Obamacare and its taxes are helping to bring down their tax burden.


Update II: The Romney camp emailed to dispute the idea that eliminating temporary tax provisions amounts to a tax hike. They have a case. TPC makes a judgment call when they predict future tax policy. In this analysis, they predict that Obama will extend his stimulus-act tax cuts. So Romney's plan only raises taxes against what TPC thinks will be Obama's policy.

More »

Republicans complaining about the households not paying enough who also want to cut taxes overall are asking the poor to subsidize a tax cut for the rich

Reuters

Here's a fresh quote from the latest non-Romney front-runner in the GOP presidential race. "This dividing of America [between] 99-1," Rick Santorum said this morning in New Hampshire, "It's anybody that makes money and pays taxes and everybody who doesn't. That's the 99-1."

Santorum (like Michele Bachmann before him) is picking a fight with the millions of Americans who make money and don't pay federal income taxes. For the last few years, this group has accounted for about half of the country. The statistic inspired a website,  "We Are the 53 Percent," which called out the 47% (or more) of households who owed no federal income tax in 2010 and again in 2011, because tax credits and deductions wiped out their liability.

Since 2000, the poorest 40% of households have averaged a federal income tax rate below zero. The graph below shows federal income taxes since 1979, from the lowest quintile (on the bottom) to the top 1% (at the top). The big picture is that we have a progressive tax system where federal income tax rates have fallen slightly for every class of taxpayers for the last three decades:


But federal income tax isn't the only tax out there. In fact, FIT accounts for only 40 percent of total government revenue. Another 40ish percent comes from payroll taxes, which all working families pay up to about $107,000. The rest comes from corporate income taxes and excise taxes on things like gas. When you add all of those taxes together, you get the overall tax burden that economists call the "effective tax rate." Here is the graph of effective federal taxes for the same groups as above (it's a similar story of gradually falling rates for every group, with some jumpiness at the top):



Three big points, here. First, the fact that all the lines in the second graph are above zero suggest that the vast majority of households that don't pay federal income taxes do pay federal taxes. (The few that don't might still owe local and state taxes.) Second, the reason most poor families don't pay federal income taxes is that Republicans and Democrats keep cutting their taxes. Third, just about everybody has shared in the tax cut parade of the last 30 years. We haven't shared equally, but we've all gotten a break.

According to Santorum's quote, the most important class division in America is between income tax payers and non-income tax payers. This is a weird fight to pick for the Republican party, and particularly for Santorum, whose tax scheme would probably increase the number of households who owe no federal income tax.*

More broadly, it's surreal for Republicans to complain about taxes being too low on the poor while they also propose tax cuts for the wealthiest Americans. Neither Santorum nor any other candidate has actually said, "I want to raise taxes on the poor to pay for tax cuts for the rich," in so many words. But there is no other way to interpret the dual claims that not enough people pay income taxes and also tax rates should be lower. If you want higher federal income taxes on the poor and lower tax revenue overall, you are asking for the poor to subsidize a tax cut for the rich. The math doesn't work out any other way.

If only Santorum were the only candidate harping on this perceived injustice. Michele Bachmann made it a talking point after she surged in the polls. Rick Perry, Newt Gingrich, and Herman Cain proposed tax plans that would let the rich keep as much as $500,000 more of their income while raising taxes on the middle class or leaving their rates where they are. Any income tax cut is going to benefit the rich more, since they have more income. But these plans are supply-side economics ad absurdum.

There is an easy, conservative argument to make about taxes -- and even about the 47 percent. Our code is a block of swiss cheese, with $1 in holes (tax expenditures) for every $2 in cheese (revenue). We can lower rates and raise revenue -- for my conservative friends, I will say: "moderately!" -- by exchanging lower tax rates for lower tax giveaways. Instead of this, some Republicans, having spent three decades demanding lower taxes every single election, are suddenly professing utter shock and disgust that these cuts have helped the poor avoid income taxes entirely. Having lamented that the poor don't pay enough taxes, they propose that the rich pay too much.

Debating tax policy is often a proxy for debating spending policy. It's not just that conservatives value lower taxes because they promote growth. It's also that they don't value government spending, because they consider it anti-growth. On the contrary, it's not just that liberals value a progressive tax system, but also that you need highly progressive tax system to raise money to pay for their programs.

So, the weirdest part about Republicans' fixation on poor people not giving Washington more of their money is that the GOP doesn't want Washington to have more money! Poor people paying nothing dovetails nicely with an overall strategy of starving government of revenue. This isn't about public policy, really. It's just some rotten apples in the GOP trying to make middle-class families indignant that somebody else is getting preferential treatment.
____
*It would lower marginal rates on earned and investment income, keep the biggest deductions, and triple the child exemption. Rates would go down, carve-outs for big families would go up. In fact, if Rick Santorum's raison d'etre were to be the candidate for zeroing out the federal income tax for as many people as possible, reducing rates and adding exceptions is exactly how he would start!

Hampered by a remarkable collapse of private debt and struggling to sell its public debt on the market, Spain is in an economic free fall

Wikipedia

Before I depress you with some really hideous graphs, here's a story about Spain and Germany -- two lovely European countries, both alike in soccer excellence, both shaped like cheese squares with an edge bitten off -- that are going in opposite directions in the aftermath of the Great Recession.

In the boom years of the 2000s, Spain was riding a real estate and construction bubble, and frugal Germany was still recovering from the fizzle-out of its telecom burst while the country grappled with labor reforms that many accused of slowing down the economy. Looking for a hot bet, German banks bought debt off smaller European countries, which had the effect of inflating their housing bubbles. For much of the decade, Spain was growing twice as fast as Germany.

Then the bubble burst. Germans, famously thrifty, had an easier time thriving in a global balance sheet recession. With factories humming and domestic spending low, they exported their way to growth that the developed world could only envy. Meanwhile the Spanish, who built up more private debt than almost any other country, have been an international mascot for debt hangover. Between 2007 and 2011, private sector debt swung 17 percent toward savings in Spain, according to Richard Koo, and the country's unemployment skyrocketed from 8 percent to 20 percent.

That brings us to December 2011, when it was announced that Germany's unemployment rate fell to 6.8 percent, its lowest since 1991. In the same month, Spanish unemployment benefits reached a 15-year high. More than 20 percent of the country is out of work, and nearly 50 percent of young people are unemployed, the worst youth joblessness in the euro zone, if not in the developed world. Hampered by a remarkable collapse of private debt and struggling to sell its public debt on the market, Spain is in an economic free fall, and growth likely turned negative in the last quarter of last year.

This collection of Spanish economic data (via Zero Hedge) reveals the state of 2012 Spain:



To sum up: The overall unemployment rate is in the mid-20s, industrial production and services activity have both cratered, construction indicators like cement consumption have been devastated after doubling between 1998 and 2007, retail is in a free fall, and export growth (most of which go to Europe) is falling is slowing. [Word of warning: None of these graphs have the same Y-axis range, so beware direct comparisons.]

In the next year, Spain is meant to cut spending to show the bond market that Madrid can stabilize its all-important ratio of debt to GDP. But what Spain really needs today is what it had 10 years ago: Lots of money flowing into the country! Spanish leaders know the intricacies of Spanish economics far better than I ... but I do know something about ratios, and if your GDP isn't growing, it's rather impossible to increase your GDP faster than your debt.

Spain has avoided an even worse recession, if you can believe it, by growing exports in every year since the housing crash. But even here, trouble lurks. As you can see (bottom-right graph in the collection above), export growth is slowing down as the nation's largest trade partners -- in order: France, Germany, Portugal, Italy, and the UK, which account for more than half of Spanish exports -- all face austerity regimes of their own, which is likely to make businesses and consumers cut back on Spanish goods. In a word: Yikes.

Northern Europe leads the world in laying out a social safety net for children and poorer parents, but the U.S. snags a top-five finish in the key "Working Mothers" category

Copenhagen/Wikipedia

With the lowest child-poverty rate among developed nations, Denmark was named the best country for work-life balance in a 2011 report from the OECD.

All three Scandinavian countries -- Denmark, Sweden, and Norway -- finished in the top seven in the ranking. So famous for their generous social safety net, which sharply divides liberals and conservatives between envy and consternation, northern Europe dominated the list, taking almost all the top ten spots.

What constitutes a balance between work and life? The OECD settled on three chief variables: (1) The share of the labor force that works very long hours (more than 50 hours a week); (2) time spent on "leisure and personal care" (defined in contrast to paid or unpaid work as spending time with friends, going to the movies, pursuing hobbies, sleeping, eating, etc.); and (3) employment rates for women who have children. The United States, which leads most of the world in share of mothers who are working, lagged in leisure time and share of overworked employees. Onto the list, with some analysis below:

The OECD chided the U.S. for insufficient investment in child welfare and for being "the only OECD country without a national paid parental leave policy." But leave is short for a reason, they wrote: Much of our welfare is run through our tax code, which means we have to work for our welfare. "US family well-being is strongly linked to employment because a significant proportion of public family support is delivered via tax breaks and credits (45% of total compared to 10% on average in the OECD)," the report found.

Perhaps the most surprising statistics in the survey concerned Germany. Europe's juggernaut recently set yet another record for low unemployment, but its family-work dynamic is one of Europe's most fraught. Only three developed countries have fewer babies per woman than Germany. The average first-time mother is as old as any country in the OECD (30), and the career costs of having a child are sky-high:

German mothers with adult children have, on average, earned less than half of the total working-life earnings of otherwise similar female employees. At 25% of median earnings, gender pay gaps are well above the OECD average (16%). Mothers spend twice as much time on care than men (over 20% against less than 10%). Germany is the only OECD country where the tax/benefit system does not favour second earners in families with children.

Compare with the Netherlands, where Dutch women work almost 2 hours more per day than men, and female employment has climbed to over 70%, if you count part-time work.

More »

Former Pennsylvania Senator Rick Santorum finished second in the Iowa caucus last night by a "minivan margin" of eight votes. Losing a state by fewer votes than a Dodge Grand Caravan has seats isn't a loss, really. Especially not when you spent 10% of Rick Perry's campaign on media and got double the votes. But you all know what this means: It's suddenly a two-man race, again (again! (again!!)).

Rick Santorum is not the jobs candidate (that was Perry). He's not the business-experience candidate (Romney). He's not the tax-cut candidate (Cain) or the wonk-with-a-wink candidate (Gingrich). He's the conservative social policy candidate. So, it's no surprise that his tax code is an instrument of social policy.

The best place to start with Santorum's economic policy is with his own family. He and his wife, a longtime neonatal nurse, have seven children together. It is fitting, then, that the most distinguishing part of Santorum's tax plan are incentives for families to become as large as his. He would triple the personal exemption in the tax code for dependent children and eliminate the so-called marriage penalty, which has punished couples with similar incomes when they marry. A Santorum tax code would eliminate the cooling effect on dual-earner marriages and encourage families to have more kids by promising larger per-child savings than the current system.

Like the other candidates, whose tax plans are compared easily in this Tax Policy Center chart, Santorum would reduce tax rates on earned income, investment income, and corporate income. But rather than pay for lower tax rates with fewer tax deductions, Santorum would keep deductions for charitable giving, mortgage interest, employer-sponsored healthcare, and retirement. Santorum would also eliminate the AMT and the estate tax on top of slashing revenue in every part of the tax code except the payroll tax.

So, is it a good plan? If you're a social and fiscal conservative, there is plenty to like. It's a "pro-growth" plan gilded with family values benefits. But the single biggest problem with Santorum's plan is that it's guaranteed to explode the deficit ... unless he finds trillions in spending cuts. He has proposed slashing government spending by $5 trillion over five years, with much of the savings coming from Medicaid cuts, Medicare reform, Social Security privatization, and cuts to income security programs. The spending cuts he identifies overwhelmingly impact the poor, the sick, and the unemployed. This is somewhat inevitable with spending-only solutions to the deficit, since three out of five dollars Washington spends goes to Social Security, Medicaid/Medicare, and defense, which Santorum won't likely cut.

But once again, we have a Republican plan that sidesteps the only reasonable compromise when it comes to tax reform. We can lower rates to promote growth and pay for it by eliminating the deductions that skew incentives and "cost" us $1 trillion a year in foregone tax revenue. You could argue that Santorum's plan does the opposite of this. It keeps the expensive tax breaks targeted at homeowners, workers, families, charities, churches, and children. But poorer families who aren't rich enough to own homes or fortunate enough to find work would find their safety net scaled back to pay for tax cuts that will benefit richer businesses and families.

What can you buy for $130? A nice pair of headphones. A romantic dinner for two. Five hours of a typical worker's pre-tax salary. Or, if you're running for president, maybe you can buy a vote.

If you combine the Republican presidential candidates' total direct spending on media with SuperPAC outlays and other television ad buys from outside groups, you come out to about $15.6 million spent on TV ads in an Iowa caucus with about 120,000 total voters. That means the average price of a buying a vote via media came out about $130 dollars, according to data collected by Buzzfeed Politics.

But $130 would have been a bargain for Rick Perry. The Texas governor spent nearly $500 in media for every vote on Tuesday. If he received enough of the 120,000 votes to average $130 per vote, he would have easily won the Iowa caucus with with 46,000 votes, or 38 percent. Here is a graph of media spending per caucus vote, all numbers in dollars.

To get a full appreciation for the actual price of a vote -- total spending divided by total votes -- you would have to factor in the amount of money spent by each candidate on travel, advance, logistics, dining and living expenses, and so forth. We don't have that information, yet. What we do have, courtesy of the Buzzfeed team, is a handy breakdown of paid media spending per candidate.

More »

The U.S. stock market woke up to a continental breakfast of strong economic reports this morning showing accelerating growth in U.S. manufacturing, a boomlet in construction spending, and Chinese manufacturing moving back into growth after a scary slip in November. Nobody has the faintest clue whether this news will keep up for 12 months, because experts are horrible prognosticators. But since everybody likes a good prediction, we wanted to create a scorecard to help you be, if not the world's best forecaster, at least one of the least bad guessers out there. Here is your case for optimism, pessimism, and utter uncertainty.




Homes: Home prices still have another full year to fall, at least, before we hit the long term Shiller/CoreLogic slope. What's worse, those historical slopes reflect consumers who have been in better positions to buy homes than the U.S. middle class family, which has been battered with years of slow wage growth and household debt that totaled 125% of income in 2007. In December, we cheered the news that new home construction has reached April 2010 levels. But, um, do you remember April 2010? I do. It wasn't so great.
 

Jobs: Of course, falling initial claims are fabulous news. But here's the rub. Six million people have dropped out of the labor force since the recession. If we factor them into the unemployment rate, we're looking at a number more like 11% than 8.6%. Before the unemployment rate goes down, it's going to go up. More jobs are always good news, but not if they come at the price of rising unemployment that scares businesses about the economy's true health.

Spending: What's the best way to predict a spending comeback? Maybe it's the savings rate, or revolving credit, or total bank credit. But spenders are people, not numbers, and people are moved by psychology as much as by math. So check out this graph of expected change in family income over time. What you're seeing is the bottoming out of American optimism, which is an under-reported aspect of our slow spending recovery in the middle class.

And here's more pessimism from today's New York Times report on the post-holiday hangover of the U.S. consumer:

Credit card delinquencies increased for the first time in almost two years in the third quarter, according to credit bureau TransUnion, though the delinquency rates are still very low. And mortgage delinquencies were about 6 percent at the end of 2011, down a little from a year ago but higher than earlier last year, compared with the prerecession rate of 1.5 to 2 percent.

Though shopping has remained relatively strong, the level of consumer debt in October was at its highest in two years, meaning people are buying on credit rather than with income. And the savings rate in November was 3.5 percent, the lowest since 2007, which suggests shoppers are also buying with savings.

Abroad: It's like I said. Europe is set to collapse. China's deterioration could turn critical. Indian inflation could rise, and its exports could slow, since so many of them go to China and Europe, in the first place. All those things don't have to happen together. Any one could set off a chain of events that hurts the U.S. economy. And if China and India and Europe surprise with strong growth, guess what? Oil prices will probably rise, causing a demand shock for suburban families and businesses.

A bit of Socratic humility is useful when we talk about the economy: We know nothing. Twelve months ago, economic forecasters were fairly certain that the U.S. was about to explode for a monster 2011. Goldman Sachs predicted that it would be the Year of America. We know how that ended. A gas spike shocked demand in the first quarter. Congress flirted with default over the summer. Economic growth was either subpar, if you go by GDP, or nearly negative, if you go by GDI. The stock market was as flat as its been in decades.

My favorite economic indicator from 2011 is the Citi Surprise Index, which tracks how wrong economic forecasters have been over time. A reading of zero indicates a perfect economic forecast. A high number reflects a stronger-than-expected economy, and a negative number reflects overly optimistic economists. Predictions are fun. But boy are they wrong, just about always.

The new "Mission: Impossible" film has made ten times more money than smaller films like "Young Adult." If greater demand is supposed to move prices, why does a ticket to each movie cost the same?

Tom Cruise/Mission: Impossible

At the AMC Loews in Georgetown, Washington, D.C., every evening ticket is $12, plus taxes, whether you want to see Mission: Impossible - Ghost Protocol, the holiday-season juggernaut starring Tom Cruise bouncing off Dubai's 2,700-foot Burj Khalifa tower, or Young Adult, a small, dark comedy starring Charlize Theron.

Like tens of millions of Americans, I have paid money to see Mission: Impossible, which made $130 million in the last two weeks, and I have not paid any money to see Young Adult, which has made less than $10 million over the same span. Nobody is surprised or impressed by the discrepancy. The real question is: If demand is supposed to move prices, why isn't seeing Young Adult much cheaper than seeing Mission: Impossible?

Senior rates and matinee discounts exist, but movie theaters don't offer different prices for different films showing at the same time. "Since the early 1970s, at any given movie theater, one price has been charged for all movies, seven days a week, 365 days a year," Barak Y. Orbach and Liran Einav begin in their research paper that looks at pricing strategies for movie theaters. This practice -- known, wonkily, as uniform pricing -- isn't specific to movies. It's true for sports, where I pay the same price for a football ticket whether the Redskins are playing the New England Patriots or the St. Louis Rams. It's also true for music. The fact that Katy Perry is likely to outsell Gilbert & Sullivan this year doesn't make "Last Friday Night" any cheaper than "I Am the Very Model of a Modern Major General."

But it's something of a mystery to Orbach and Einav that studios and theaters, so notoriously canny about finding profits, never experiment with higher prices to capture more money from inevitable blockbusters -- or with lower prices to fill up empty seats.

To make successful movies more expensive, you have to know what movies are going to be successful. That's not as hard as it sounds.

The Hollywood cliche is that "nobody knows anything" when it comes to how a movie will perform at the box office. But there are some basic rules of thumb. More expensive movies have bigger audiences. There is a high "correlation coefficient" between production costs and gross revenues. Sequels outperform non-sequels. The seven best-performing movies of 2011 were second, fifth or eight in a franchise. Christmastime outsells Eastertime ... and every other time, as the graph of weekly attendance below shows. Furthermore, it's practically a rule of law that big opening weekends predict overall success and that movie revenues fall after the first week.

One-price-tickets is a kind of return to the earliest days of (barely) moving pictures, when everybody would put a penny in a peep show machine. But the first instances of what film archeologists would actually call "movies" around 1910 featured different prices for different films. Movies were priced according to their length, stars, and popularity. For three decades until the 1940s, one theater would have the rights to each movie within a certain zone, and movies received grades (A, B, or C) that corresponded with ticket prices at those theaters. If the rules of the 1920s ruled today, Mission Impossible might be $15 and Young Adult might be $7. What changed?

Everything. For starters, the famous Paramount anti-trust case broke up monopolies between producers and distributors. Multiplexes replaced single-serving theaters. A recession after World War II coincided with the popularity of television to gut studio revenue, forcing them to rely on fewer, more expensive movies.
Over time, the system moved toward one price for all films. As Steven Pearlstein explains:

If you have any doubt that the studios have the power to dictate uniform retail prices, consider what happened with the introduction of "The Godfather" in 1972. Up to that point, the tradition was that theaters could charge a premium for tickets to the handful of "event" movies that came out every year -- in the modern context, the "Harry Potter" and "Spider-Man" movies. But when "The Godfather" was released in 1972, suddenly every movie theater in the country eliminated its event-movie pricing. That's the kind of "coincidence" Don Vito Corleone would have been proud of.

Forty years later, uniform pricing is uniform practice for movie theaters. And with the onslaught from online streaming, legal downloads, and DVDs, studios and theaters are nervous as heck about pissing off what die-hards they have left by moving prices based on demand. (Although, you could argue that charging more for a 3-D movie is an interesting exception.)

But Orbach and Einav find some evidence that where dynamic pricing was used, both the theaters and the studios benefited. In Japan, tickets for Jurassic Park were profitably sold for a premium of 67%, while tickets for Austin Powers were profitably sold at 45% discount for young audiences. That's a huge boost for studios, who keep an outsized share of a movie's opening weekend revenue. Meanwhile, in 1970, some D.C. theaters cut weekday tickets by two-thirds and saw popcorn sales double. That's a huge boost for theaters, since half of theaters' income comes from amenities like popcorn.

So how come we're still stuck with $12 tickets for both blockbusters and indie flicks? A few theories:

When the two immutable laws of election year go head to head -- "It's the economy, stupid" and "All politics is local" -- they produce a corollary that might strike you as a paradox: It's all about the national, not local, economy


The debate over who wins Iowa is loud enough without journalists getting all "meta" about it, but here we are again, hemming and hawing about why, as a country, we insist on inscribing the first chapter of our election narrative in a tiny Midwestern state with less than one percent of the nation's population that fails every conceivable test as a cross-section of the country. Among the claims: It's too rural, too white, with too much farming and too few tall buildings, and, worst of all, this year it's too economically healthy, as A.G. Sulzberger charged in his story for the New York Times.

Exhibits A through D for the case against the "American-ness" of Iowa's economy: (A) The state's unemployment rate was 6% in October 2011, 3 percentage points below the national average. (B) Its outsized agriculture sector was buoyed by high crop prices, high farm incomes, and rising land prices. (C) Its capital, Des Moines, was recently named one of the 20 strongest cities in a Brookings Metro poll that measures jobs, growth, and home prices. (D) Its other largest cities, Iowa City and Dubuque, both have advantages over cities in the Sun Belt, since they rely on local industries like universities and insurance and avoided the crush of the housing bust. Both cities have unemployment rates under 5%, which is below the national average ... from 2005.

Let us stipulate, then, that Iowa's economy is an outlier. The big question is why haven't more Iowans noticed? Most residents in Gallup's economic confidence index said the economy was poor and getting worse in 2011. If their state's so resilient, why do Iowans seem just as focused on the economy as they plan out their caucus vote?

There are two explanations. One is that Iowa's strengths mask some real economic pain. It's true that since 2004, Iowa land values nearly doubled due to demand for farmland. But the state also get smacked in the mouth with manufacturing's long recession. Six out of 10 jobs lost between 2007 and 2010 were in manufacturing, according to CNN. One in eleven 20-somethings are out of work. The same Brookings survey that named Des Moines one of the recession's top survivors also recently reported that it was the only large Great Lakes metro with stalling employment in early 2011.

The other answer is this: It's the national economy that voters pay attention to when they elect national leaders. "People's assessments of the national economy are more strongly related to their vote than are their assessments of their own personal finances," John Sides wrote in a post at The Monkey Cage. He taps a study that found that state-level unemployment had no relationship to presidential election outcomes in the states. Same goes for real income per capita by state. Another analysis concluded:

Voters believe the president has little effect on their local economy, and they do not form their evaluation of the national economy based on surrounding conditions. This finding suggests that people form their opinions of the national economy based on non-local factors, such as the national media.

So, is Iowa a microcosmic gem of the United States, or an outlier elevated to national attention by an antiquated nomination process that nobody actually likes? Maybe one, or the other. Maybe both! Or maybe, it doesn't matter. When the two immutable laws of election year go head to head -- "It's the economy, stupid" and "All politics is local" -- they produce a corollary that might strike us as a paradox: "All politics is the national (not local) economy, stupid."

The economy doesn't care about the calender, but journalists and readers do. So, although December 30 is no better time to lift up and take stock of the last 12 months than any other day of the year, it's around this time that we get the best, most complete summaries of the state of the economy.

Take, for example, this wonderful round-up of investments in 2011, via Suzy Khimm. It crystallizes one of the 2011's most angst-inducing facts for liberals. In a year where the Federal Reserve worried about inflation, Congress worried about the deficit, and nobody in government seemed to put equal energy into job-creation, the 2011's best bet was debt. In a year where Bill Gross fled bonds and goldbugs kept up their chirping, investment in U.S. bonds paid off better than gold.

There were three simple rules for writing an exceptionally popular business article this year. First, be cosmopolitan. Four of our 11 most popular business stories of the year prominently featured other countries and international comparisons -- five, if you use a liberal definition of the word prominently. Second, be collegiate. The two most similar stories on our list deal with rising levels of college debt and the government's plan to do something about it. Third, be quirky. We called Steve Jobs an asshole (a lot). We asked why flight attendants weren't so hot, anymore. You seemed to like that stuff.

Here are the eleven most popular business stories (by unique visitors) we wrote in 2011:

11. Nearly 50% of the Young People in Greece and Spain Are Unemployed, by Derek Thompson

The euro was created partly to let poorer countries borrow more cheaply and help net exporters like Germany sell to richer neighbors. This has given Germany an amazing trade advantage, allowing it to sell its stuff to richer neighbors without seeing its currency appreciate or its goods get more expensive for Greeks and Irish to buy. Look how nicely that's worked out for Germany!

10. Obama's Student Loan Order Saves the Average Grad Less Than $10 a Month, by Dan Indiviglio

Of the many long-term problems the U.S. economy faces, student loans are a big one. Education costs are rising very quickly and incomes aren't. As a result, students will have to borrow more and more money to obtain university degrees and will have a tougher time paying their loans. President Obama seeks to respond to this question with an executive order in the next part of his "We Can't Wait" unilateral stimulus effort. While the president's heart may be in the right place, his effort isn't like to have much impact.

9. India: The World's Secret Silicon Valley, by Nirmalya Kumar & Phanish Puranam

For many firms, developing new products for consumers around the world is the most visible manifestation of innovation - the "real deal." But many people still see India as a place where other people's ideas are made or executed and not where innovation begins. (After all, you don't hear about an Indian equivalent to Google, iPod or Viagra.) Bu they're wrong. In more than 600 captive research and development (R&D) centers across India today, corporations are designing and building amazing new things.

8. Have You Ever Tried to Sell a Diamond?, by Edward Jay Epstein [Originally published in 1982]

The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever -- "forever" in the sense that they should never be resold.

7. Be a Jerk: The Worst Business Lesson From the Steve Jobs Biography, by Tom McNichol

Steve Jobs was a visionary, a brilliant innovator who reshaped entire industries by the force of his will, a genius at giving consumers not only what they wanted, but what they didn't yet know they wanted.

He was also a world-class asshole.

6. I Was Wrong, and So Are You, by Daniel B. Klein [Originally published in December 2011 magazine]

The new results invalidated our original result: under the right circumstances, conservatives and libertarians were as likely as anyone on the left to give wrong answers to economic questions. The proper inference from our work is not that one group is more enlightened, or less. It's that "myside bias"--the tendency to judge a statement according to how conveniently it fits with one's settled position--is pervasive among all of America's political groups. The bias is seen in the data, and in my actions.

5. The Debt Crisis at American Colleges, by Andrew Hacker and Claudia Dreifus

How do colleges manage it? Kenyon has erected a $70 million sports palace featuring a 20-lane olympic pool. Stanford's professors now get paid sabbaticals every fourth year, handing them $115,000 for not teaching. Vanderbilt pays its president $2.4 million. Alumni gifts and endowment earnings help with the costs. But a major source is tuition payments, which at private schools are breaking the $40,000 barrier, more than many families earn. Sadly, there's more to the story. Most students have to take out loans to remit what colleges demand. At colleges lacking rich endowments, budgeting is based on turning a generation of young people into debtors.

4. Picture of the Day: Shanghai in 1990 and 2010, by Derek Thompson

3. The Declining Hotness of Flight Attendants, by Megan McArdle

If you look at the national airlines in countries where anti-discrimination rules and/or unions are less powerful, like Qatar or Asia, you'll notice that they spend a lot of time here advertising ... their hot stewardesses.  (Also their lay-flat seats.  But don't forget the super-hot stewardesses).  That's not because they're in an oligopoly.  It's because the domestic labor market lets them get away with it, and ours doesn't. 

2. Can the Middle Class Be Saved?, by Don Peck [Originally published in September 2011 magazine]

Arguably, the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing-out of the middle class. Median incomes declined outright from 1999 to 2009. For most of the aughts, that trend was masked by the housing bubble, which allowed working-class and middle-class families to raise their standard of living despite income stagnation or downward job mobility. But that fig leaf has since blown away. And the recession has pressed hard on the broad center of American society.

1. If U.S. Cities Were Countries, How Would They Rank?, by Richard Florida

More »