Megan McArdle

That's the question of the day, now that a new article in the Washington Post indicates that the government is considering a package of business tax breaks to stimulate jobs ahead of the mid-terms, including a payroll tax holiday.

I confess, I'm a ridiculously heavy user of tabbed browsing.  I routinely have fifty or more tabs open.  I frequently switch between tabs.  I often work twelve hours or more, without shutting down my computer.  So naturally, I'm a little harder on my web browser than a more normal user might be.

But here's the thing:  I've always used browsers like this.  Ever since I first discovered tabbed browsing, way back in thethe last decade, I have been joyously keeping every story I might want to blog about right there in my browser window where I could see it.  I've always flipped back and forth between six or eight stories at a time, and before there were tabs, I did the same thing with windows.

So how come, in the last eight or nine months, my browsers have suddenly started crashing all the time?

It happens in Firefox, which has been my go-to browser for almost a decade now.  It happens in Chrome, which I can't use anyway, because it won't play nice with Movable Type, our blogging back-end.  It allegedly also happens in Opera.  I am cautiously trying Safari, which I've never found very satisfying, but which is apparently more stable than the others, at least on my Mac.  Of course, that's setting a rather low bar.  At this point, my other browsers are about as stable as the Unabomber . . . if he were snorting handfuls of PCP.

I've done all the obvious things--not only tried new browsers, but uninstalled all my add-ons, cleared my cache, even switched computers (which didn't help).  I just lost a post that I spent two hours writing, and this isn't the first time it happened--yet it's something that virtually never used to happen to me.  Word crashed, yes, but a web browser?  A simple piece of software that chugged along, never giving trouble.  I want to know why all that suddenly changed, forcing me to think about composing everything I write in Google Docs.  Which seems ridiculously ponderous and annoying.

So I'm now looking for a Unified Theory of Browser Suckage.  What's with the collective nervous breakdown in our national web-surfing tools? 

It seems even Bill Gates can be taken in by poor understanding of statistics.  Specifically, this one:

The chart at left, for example, shows by size the percentage of schools in North Carolina which were ever ranked in the top 25 of schools for performance.  Notice that nearly 30% of the smallest decile (10%) of schools were in the top 25 at some point during 1997-2000 but only 1.2% of the schools in the largest decile ever made the top 25.

Seeing this data many people concluded that small schools were better and so they began to push to build smaller schools and break up larger schools. Can you see the problem?

The problem is that because small school don't have a lot of students, scores are much more variable.  If for random reasons a few geniuses happen to enroll one year in a small school scores jump up and if a few extra dullards enroll the next year scores fall.   

Thus, for purely random reasons we would expect small schools to be among the best performing schools in any givenyear.  Of course we would also expect small schools to be among the worst performing schools in any given year!  And in fact, once we look at all the data this is exactly what we see.  The figure below shows changes in fourth grade math scores against school size.  Note that small schools have more variable scores but there is no evidence at all that scores on average increase with school size. 

The Gates foundation, which pushed for smaller schools on the basis of this finding, has apparently now acknowledged the mistake.  Victory: math!

James Ledbetter at Slate writes:

Some Netflix skeptics have been honest enough to admit their errors. In October 2006, Jim Cramer memorably donned sackcloth and ate a piece of a hat with the stock symbol NFLX on it. His sin: He told his viewers to sell Netflix at $19 a share. Today, it's trading at more than $130.

While its critics were flailing away, the company has continued to grow steadily and spread its influence well beyond the red envelope. One of Netflix's direct competitors, Blockbuster--which for years was supposed to put Netflix out of business--is teetering on the edge of bankruptcy.

It wasn't an unreasonable bet, though.  It's very common for innovative new companies to introduce a concept, and then go broke as established competitors, or owners of complementary assets, exploit their invention. Think of CAT scans, which made lots of money, but ultimately not for the company that introduced them.  TiVo, which has revolutionized cable provision, but struggled to make money itself.  Or Netscape, which went public with dreams of unseating Microsoft, but ultimately succumbed when Microsoft realized that it could offer free browsers forever in order to protect its other lucrative software markets--and Netscape couldn't.

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Conor Friedersdorf recently posted this thought:

Though it isn't defensible, it is unsurprising that a lot of people who eschew offers to work at these firms, favoring public sector work instead, imagine that they are making an enormous personal sacrifice by taking government work. The palpable sense of entitlement some of these public sector folks exude is owed partly to how few of 'our best and brightest' do eschew the big firm route (due partly to increasing debt levels among today's graduates, no doubt).

Which has drawn a lot of email defending the right of government employees who gave up Big Law or McKinsey to feel like they made a sacrifice, and like they're a little hard used by the current US income structure. 

Speaking as someone who attended one of these lustrous graduate institutions that allegedly produce our "best and brightest", I'd like to say . . . knock it off.  Stop patting yourself on the back.  You can seriously damage the ligaments in your shoulder that way, as I discovered when pursuing an ill-placed mosquito bite too vigorously.

You know how much credit I deserve for giving up highly paid professional work in order to spend my days boring the hell out of you all with my breezy explanations of present value calculations?  None.  Am I performing a public service?  I hope so.  I take my profession seriously, and like to think that I am adding something to the public understanding.  But that was my choice.  I knew what I was giving up when I made it, and I also knew what I was getting.  Which is to say, a job that I absolutely love more than anything I've ever done, a chance to speak to interesting people and see amazing things all the time.

Getting to do those things involved a tradeoff.  I don't get to spend my vacations at charming Provencal cottages or swank Caribbean resorts.  I don't get to buy the $1.1 million dollar mansion in LeDroit Park that I daydream about.  (Hey, the owner could be my long-lost great uncle . . . )  I have to watch the food budget, and I can't buy the designer clothes I'd really like to wear.

I took the job because I think this is a great tradeoff.  My classmates who went to banks and consultancies mortgaged their late twenties and early thirties doing work I would have found much less rewarding; they are enjoying the payoff now--at least the ones who didn't simply lose everything when Lehman and Bear went down.  I don't want to say they "deserve" it, because almost anyone in that sort of position has had an enormous amount of luck along with their hard work, starting with being born to the right family.  But I don't begrudge it to them.  I think I got the better end of the deal.

And so do the folks who took jobs in government or academia or the non-profit sector.  Maybe a few of them really "made a sacrifice" for some obscure reason involving widowed mothers and villanous landlords with a penchant for late-night visits to the railroad tracks, but most of them took the job because they thought they'd like it better.  The kind of people who are actually willing to make the sacrifice of doing something they hate in the name of the greater good tend to join monestaries or the army, not the Political Science department at Penn State.

Maybe they made a mistake about how much they'd like their job, but it's not any more unfair than realizing you wish you hadn't broken up with your college girlfriend.

If you have a job more interesting than doing ten years of document discovery, or proofreading pitch books, and you can afford all the health care and calories your heart could want, then it seems to me that you're way ahead of the game.  It's downright greedy to think that you ought to have the great job, and the great salary (or that you shouldn't have to compete for things like nice houses with people who do pull in serious cash, which is really another way of saying the same thing).

I'm not saying that everyone who gave up better-paying jobs thinks they're entitled to some sort of public applause, but one does run into this every now and again.  One especially runs into the feeling that salaries are not fairly distributed--that it's not fair that the work they love is so badly paid.  But that is the essence of fair; they get money, and you get to do the work you love.  Gains from trade!

I'd also like to take a secondary swipe at the notion that graduates from Ivy League schools are "our best and brightest".  The Ivy League may represent the cream of a very small segment of incredibly affluent Americans.  But there's a lot more cream out there, and it's a pity that American institutional structures seem so apt to exclude it from the mix.

Commenter Tall Dave writes:

Anyways, I'm tired of hearing tax cuts "cause" deficits, as though ever-increasing spending was some sort of natural law we have no control over.

To which Rob Lyman replied:

It's not a natural law, but it is just as inevitable as a Greek tragedy. I mean, Oedipus didn't have to sleep with his mother, he just got a "Strengthening Our Communities by Strengthening Our Families" grant from HHS to do it.

The Center on Budget and Policy Priorities has responded to my critique of their graph:

First of all, the $700-billion figure that McArdle cites isn't the full 10-year cost of the high-income tax cuts. It's only the revenues that President Obama's upper-income tax proposal would generate. The President's proposal, however, also would reduce the tax rate on dividends from 39.6 percent under current law to 20 percent for high-income taxpayers. In addition, it would extend the 28-percent income tax bracket up to $200,000 for individuals and $250,000 for couples. Adding these two items, the total cost of the upper-income tax cuts is $837 billion over the 2011-2020 period and $120 billion in 2020 alone, based on estimates from the Joint Committee on Taxation and the Department of the Treasury. That's about 0.5 percent of gross domestic product (GDP) in 2020.

Income taxes tend to grow as a share of income each year because rising real incomes push people into higher tax brackets, and we project that the high-income tax cuts will cost about 0.7 percent of GDP over the next 75 years. Social Security's trustees estimate that Social Security's shortfall over the next 75 years also equals 0.7 percent of GDP, so the cost of the upper-income tax cuts and the amount of the Social Security shortfall are about the same. McArdle correctly notes that the Social Security shortfall 75 years from now is higher than the 75-year average, but so is the cost of the upper-income tax cuts.

Despite what McArdle implies, the Center has not suggested that "you could 'pay for' the Social Security shortfall by rescinding the Bush tax cuts on the rich." We have made quite clear that President Obama and Congress should let the upper-income tax cuts expire and devote the proceeds to deficit reduction. At the same time, as Kathy and I wrote, we have consistently argued that Congress should enact revenue and benefit changes that would place Social Security on a sound long-term financial footing.

In comparing the high-income tax cuts to the Social Security shortfall, we wanted to illustrate the hypocrisy of Members of Congress who argue that the tax cuts are affordable but Social Security is not, even though their cost is about the same.

My thoughts, at rather unfortunate length, below the fold:

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The Center on Budget and Policy Priorities has made some splashes with this graph.  I find this strangely unconvincing as a policy argument for anything.

For starters, the 0.7% of GDP that it covers only matches the shortfall for a brief period, at least according to the Social Security Trustees report.  By the middle-to-late twenties, the shortfall is more than twice the amount of the Bush tax cuts on the rich.  Even if we hadn't already (hopefully) earmarked this money for something else, this would be at best a stopgap measure; the program would rapidly begin putting more pressure on the budge

But I can't even make those numbers add up over the short term.  By the admittedly ham fisted method of dividing the roughly $700 billion the CBO said that extending the Bush tax cuts for the rich would cost, by the $190 trillion worth of GDP that the CBO projects over the next ten years, I get 0.36% of GDP, not 0.7%.  The CBO's numbers don't seem to be increasing much beyond the rate of inflation towards the end of the forecast period, so I find it hard to reconcile their numbers with the CBPPs even by extending out the forecast period.  And for all my skepticism of the accuracy of CBO forecasts, I am apt to trust them over a think tank with a decided ideological tilt (in either direction).

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Jay Cost makes a pretty strong case that it is.  The Republicans started pulling into parity with Democrats after the disastrous town hall meetings of August 2009, and the Democrats plummet around the turn of the year, when health care was the main focus of political coverage.

Earnest question:  which national policies in history have started unpopular, passed, and then gotten much more popular?  I'm not talking about things that started popular and then developed vehemently entrenched constituencies, but rather, things that started unpopular, and then people eventually realized they liked them. 

I'm in the middle of Sex at Dawn, the book that's caught the attention of a number of commentators, including Dan Savage and our own Andrew Sullivan.  I'm about halfway through the book, and so far, I'm disappointed to say that it reads like horsefeathers.  As someone who's wary of evolutionary biology stories which just happen to tell us that our dominant social structures are "natural", I should find the book interesting.  Unfortunately, it reads like an undergraduate thesis--cherry-picked evidence stretched far out of shape to support their theory.  The language is breathless rather than scientific, and they don't even attempt to paper over the enormous holes in their theory that people are naturally polyamorous.

For example, like a lot of evolutionary biology critiques, this one leans heavily on bonobos (at least so far).  Here's the thing:  humans aren't like bonobos. And do you know how I know that we are not like bonobos?  Because we're not like bonobos. There's no way observed human societies grew out of a species organized along the lines of a bonobo tribe.

Besides, as Jesse Bering points out, jealousy ('heartbreak") "throws a monster of a monkey wrench into the evolutionists' otherwise practical polyamory".  If we're evolved to be polyamorous, why do we also seem to be evolved to be extraordinarily possessive?  This seems like an evolutionary maladaptation.  And I find it hard to believe that this is just a cultural quirk, given that it does appear to be cross cultural, and it doesn't fade much over history the way that, say, attitudes about female dress have.

Lifetime monogamy may not be the evolved human template.  But I'm pretty sure that carefree polyamory isn't either.  And at some level, who cares?  Rape seems to be pretty "natural", but I'd still like to build social institutions that fight this "natural instinct".  The book might have been thought-provoking, but so far, in trying to prove too much, they end up proving nothing at all.  And the "I bet you didn't know about . . . bonobos!!!!" tone is incredibly off-putting.

Joe Nocera is concerned about the state of the US real estate market.  Unemployment and a huge "shadow inventory" of as-yet-unforeclosed-upon homes with badly delinquent mortgages are making people afraid to buy.  Meanwhile, those who are foolhardy enough to seek loans are having trouble getting them:

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Paul Krugman writes:

But the stimulus wasn't nearly big enough to restore full employment -- as I warned from the beginning. And it was set up to fade out in the second half of 2010.

I've heard this complaint from a number of commentators, and it always surprises me.  Did anyone think we were going to get a stimulus big enough to restore full employment?

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From the Denver Post's collection of early color photos, a worker at a carbon black plant:

Tyler Cowen and Brad DeLong are fessing up. It's a Friday in August, with nothing to report but the dismal GDP figures we were all expecting.  So I'll start with the Iraq War:

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This is the most chilling story I've seen in a while:

Diego Ferney Jaramillo, 16, and Eibart Alejandro Ruiz Munoz, 17, were shot dead on Aug 15 while riding a motorcycle on the outskirts of the town of Puerto Asis.

Two days later, young people in the town received via Facebook a hitlist with 69 names on it, including those of the two killed. The teenagers on the list were advised to leave town or face death.

Norbey Alexander Vargas, 19, was shot dead three days after his name appeared on the list.

Police thought the first list was a macabre joke or a game between adolescents, officials said, but when the second list with 31 additional names appeared days later, parents began to panic and authorities launched an investigation.

Further threats have been issued, with a message on a leaflet left on cars in the Colombian town reading: "Please, as relatives, ask [the teenagers on the list] to leave town in less than three days, or we'll see ourselves forced to carry out more acts like that of 15 August".

Kevin Drum has a roundup of commentary from many smart commentators I admire.  They're hardly alone; everyone hates the Fed!  Why won't they get us out of this mess?

Here's one possibility: because many of the people who are now complaining that they are too tight, are the same ones who until very recently were loudly complaining that they were too loose during the last recession.  There's been a pretty vibrant cottage industry in placing the  blame for the housing bubble squarely on the frail shoulders of one Alan Greenspan.  He is a convenient villain for liberals, who hate his politics, and conservatives, who hate the sort of technocratic institution he represents.  Blaming Alan Greenspan allows liberals to dodge uncomfortable questions about the unintended consequences of government intervention, and conservatives to dodge uncomfortable questions about whether free markets can produce really, really bad outcomes.

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The Wall Street Journal had a piece the other day on corporations that choose to walk away from their mortgages.  It's full of self-serving quotes about why corporations that have plenty of cash just have to stiff the folks who were foolish enough to lend them money.  And investors who are quite pleased by it all:

Banking-industry officials and others have argued that homeowners have a moral obligation to pay their debts even when it seems to make good business sense to default. Individuals who walk away from their homes also face blemishes to their credit ratings and, in some states, creditors can sue them for the losses they suffer.

But in the business world, there is less of a stigma even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments. Deutsche Bank AG's RREEF, which manages $56 billion in real-estate investments, now favors companies that jettison cash-draining properties with nonrecourse debt, loans that don't allow banks to hold landlords personally responsible if they default. The theory is that those companies fare better by diverting money to shareholders or more lucrative projects.

"To the extent that they give back assets or are able to rework the [mortgage] terms, it just accrues to the benefit" of the real-estate investment trust, says Jerry Ehlinger, RREEF's co-chief of real-estate securities.

Earlier this month, a group led by investment firms Colony Capital relinquished control of the $2 billion Xanadu retail development in New Jersey to a bank group, blaming their creditors for balking at a restructuring. The lender group said it is "disappointed that despite its best efforts" it couldn't reach a deal.

More landlords are expected to follow suit. Of the $1.4 trillion of commercial-real-estate debt coming due by the end of 2014, roughly 52% is attached to properties that are underwater, according to debt-analysis company Trepp LLC. And as the economic recovery sputters, owners of struggling properties are realizing a big property-value rebound isn't imminent.

Owners of commercial property have an easier time walking away than homeowners because commercial mortgages are typically nonrecourse. That means the biggest penalty for walking away is the forfeiture of assets and cash flow they may generate.

I can understand why the REITs like this--free cash flow!  But I can't understand how it's a good strategy for the borrowers.  Commercial mortgages are a highly leveraged business, and if one of these guys came to me asking for more loans, after he stuck his last banker with his ailing shopping mall, I'd tell them to go . . . well, do something I probably shouldn't say on a family blog.

Of course, not all of these are what I would call strategic defaults.  Just as I think a homeowner should walk away from any mortgage that risks pushing them into insolvency, some of these "strategic defaults" may simply represent owners walking away now and salvaging their capital, instead of being foreclosed upon later after their tenantless rental or shopping mall has eaten up every last bit of cash and they have to shutter the doors.  In neither the business nor the individual case does this strike me as reprehensible.

What should happen in many cases like that is that the terms get renegotiated to something where both sides are better off than in foreclosure.  But as in the residential market, securitization has made this trickier:

Whether landlords walk away from properties often depends on the lender. In recent years, most projects were financed by the use of commercial-mortgage-backed securities, or CMBS, which are effectively bundles of mortgages sold as bonds to thousands of investors. Restructuring debt with scores of bondholders is more difficult than with banks.

If borrowers do walk from bond-financed properties, the real estate is often foreclosed and sold for less than the loan balance. Investors holding those loans take another hit by paying fees to loan servicers that handle the liquidations.

On the other hand, the article also suggests there's a healthy dose of self-interest:

Also, public and private real-estate companies don't often default on mortgages provided by banks because the same banks are likely to be providers of credit lines or other loans. Playing hardball with a bank on one loan could adversely affect the relationship and other loans.

It should be a lot easier for bankers to weed out strategic defaulters in business than in the individual market; the cash flows are much more transparent.  One hopes they do.  Meanwhile, the problems with securitization become ever more apparent.

I'm finally reading The Ungovernable City, the biography of Mayor Lindsay's tenure.  Though he ran as a Republican, Lindsay was a progressive reformer in the model of New York's liberal party.  Like the Liberals of the time, Lindsay had a vision of tearing down the old, inefficient machine and building a vast new system that ran on the highest of principles.  This made him a stand-out hero in the House of Representatives, but it didn't make him particularly effective even there.  And it was a disaster when he tried to run the nation's largest city, filled with fractious interest groups who didn't share his particular set of principles.  Arguably, politics is the art of getting a deal when you can't agree on the matter of principles.

I may blog more about this later, but I was particularly struck by this passage:

Quill's name has become permanently associated with the 1966 transit strike, but it was arguably Mayor Wagner who made it a possibility when he signed Executive Order 49 into law on March 31, 1958.  The act gave municipal unions the right of collective bargaining.  Alex Rose, the vice chairman and effective head of the Liberal Party, president of the United Hatters, Cap and Millinery International Union, and a Wagner adviser, had urged Wagner to sign the bill, which became known as the" Little Wagner Act" (a reference to federal labor legislation introduced by his father, Senator Robert F. Wagner, in 1935).  Toward the end of his life, though, Rose came to regret doing so because "the city is not an employer in the traditional sense.  Profits do not exist.  Workers are not extracting a share of the profits but rather a share of taxes.  Unlike bargaining in the private sector, municipal collective bargaining is part of the political rather than the adversary process."

Mayor Wagner made it work because he had strong political ties to the unions; he co-opted the collective bargaining process to deliver results that were politically palatable to the taxpayers.  But this was undone by two things.  First, Wagner's wife died, and the city grew more fractious; with his popularity waning and his private life in turmoil, Wagner declined to run for another turn.  And second, the transit union grew more diverse.  "Red Mike" Quill had been able to deliver his union for Wagner when it was composed largely of Irish Catholics like himself.  But by the mid-sixties, he had growing numbers of black and Puerto Rican members who did not feel the same bonds with the union establishment; moreover, since the minority members of the union disproportionately had low wage jobs, they resented the deals that kept them, they felt, underpaid relative to other city workers, and indeed others in the transit system.

The result was a series of demands that would have cost an already fiscally precarious city between $250 million and $650 million over the next two years.  On the first day of Lindsay's term, Quill took his workers out on strike; businesses lost millions, and the city was crippled by the traffic.  The problem was compounded by Lindsay's imperious manner, lack of political skill, and the woeful inexperience of his staff, who made deals that they had to match for other unions in later years.

This process was not unique to New York.  And now we are facing a pensions crisis driven by decisions like this.  I share the anger at politicians who gave away lavish unfunded pension increases as "free" political sweeteners to favored unions, and put their budgets on the inevitable road to ruin.  But it's easy to forget that often, these politicians were in a no-win situation.  When crucial public sector workers collectively bargain, they end up with ruinous power over the taxpayers:  how many days can a city survive without its police, its transit workers, or its teachers?  In New York, strikes by such workers are technically illegal, but in practice, unless you've got a spare pot of policemen or transit workers, the illegality doesn't do you any good, because you can't fire the workers.  A single industrial company can maybe ride out such a transition, but a city like New York simply cannot.

That's why those unions were historically barred from collective bargaining.  And perhaps unsurprisingly, I think that was the right call.  As we're seeing in GM, even a mighty private sector union like the UAW can be forced to confront reality.  I'm not sure how that's going to happen in the public sector, where the bargainers elect the folks on the other side of the table.

Naomi Wolf says that when someone (apparently possibly her former assistant) stole her checks and ATM card, her bank ran out the clock on her time to claim fraud, rather than closing her accounts and making her whole.  The result?  She lost $300,000.

If this is true, it's an extraordinary claim, and the bank will deservedly be hit with huge penalties. But the facts seem a little murky. The bank says that it denied her fraud claim, which is not consistent with the claim that they simply stonewalled until it was too late to file; this seems to be confirmed when Wolf says that she was notified of this only after taking further losses.  Problematically, Wolf seems to have been incredibly lackadaisical in identifying the fraud, or pursuing matters with the bank.

I'd be surprised to find that the bank, which clearly knows that she's a famous writer with more than enough money to hire a lawyer, simply decided to engage in blatant malfeasance aimed at forcing Wolf to eat a huge loss.  On the other hand, it's not like corporations haven't done incredibly stupid things before, and if Washington Mutual had been the height of corporate responsibility, they wouldn't have been sold to JP Morgan Chase at fire-sale prices.

At the very best, if Washington Mutual's behavior was anything like that described, they behaved completely unethically--encouraging her to keep the accounts open so they could investigate the fraud, and then not investigating, refusing to give her updated records of her account or let her see copies of her cancelled checks.  They'd better have some pretty compelling reason to believe that there was no fraud.

If they do, I expect we'll see it in the lawsuit--and Wolf will end up with egg on her face.  If they don't, I expect this will settle very quickly.  It's usually a mistake to pick a fight with folks who buy ink by the barrel.

However this works out, it's worth remembering that your bank's interests are not identical with yours, and if you suspect fraud, you need to be proactive about rectifying it.  Most importantly, whatever your bank tells you to do, get it in writing.

Interesting article on Trader Joe's from Fortune:

A closer look at its selection of items underscores the brilliance of Coulombe's limited-selection, high-turnover model. Take peanut butter. Trader Joe's sells 10 varieties. That might sound like a lot, but most supermarkets sell about 40 SKUs. For simplicity's sake, say both a typical supermarket and a Trader Joe's sell 40 jars a week. Trader Joe's would sell an average of four of each type, while the supermarket might sell only one. With the greater turnover on a smaller number of items, Trader Joe's can buy large quantities and secure deep discounts. And it makes the whole business -- from stocking shelves to checking out customers -- much simpler.

In a lot of ways, Trader Joe's has more in common with Wal-Mart than with Whole Foods or a farmer's market.