Over at the Washington Monthly, David Atkins accuses me of sustained contrarianism:

There is a growing amount of contrarian analysis these days suggesting that Americans really aren't so angry about the economy after all....Washington Monthly alum Kevin Drum hammers away at this theme again and again....In most cases, these writers are trying to use broad quantitative data about economic satisfaction to explain away what seems to be obvious on its face, which is that Sanders and Trump are both running economic populist campaigns that have resonated deeply with large and different sections of the electorate.

This is....absolutely correct. I have been doing this. And Atkins fights back with a strong case against my contrarianism, one that I've been expecting for quite a while but haven't really gotten until now:

The corollary to this argument is that it’s not economics but raw racism that is driving Trump’s success, and that Sanders’ success is a factor less of economic anger than some combination of sexism and cult of personality.

To believe these things, of course, you would have to assume that voters aren’t actually being inspired by the rhetoric and policy positions of Sanders and Trump but by other factors they’re subtly tapping into....You would, in essence, have to ignore all the qualitative data in front of you showing what people say in their own words, in favor of polling data about their generic feelings about the economy or their own current personal economic situation.

That would be a mistake.

One of the most important things to realize about economic anxiety in America today is that it is broadly independent from whether you have a job, or even whether you are doing well personally at the moment. I personally know many people who are making over $100K household income and are generally content with their employment situation personally, but are still angry about the unfairness and instability of the economy in general. Just because a college student is having a fairly good time and believes they can get a decent job coming out of school, doesn’t mean they aren’t upset and concerned about paying off tens of thousands of dollars in student loan debt. Just because a 1099 worker or independent contractor is doing OK financially now, doesn’t mean that their lack of stable health insurance and social safety net if something goes wrong isn’t a big concern to them.

Yes. Ignoring qualitative data is dangerous and dumb. If you talk to people and they tell you things, you need to pay attention. It doesn't mean you take everything they say at face value, but at the very least you have to take them seriously.

But here's the thing: this is what originally motivated my skepticism. There was tons of qualitative data suggesting a great deal of anger over economic unfairness, but the quantitative data showed nothing. Literally nothing. It's almost impossible to find any data, polling or otherwise, that suggests economic stress is significantly worse than usual.

This disconnect is precisely the thing I'm interested in. Sure, blue-collar workers are angry about the loss of manufacturing jobs. College grads are angry about high student debt. But there are always people who are angry about the economy. The question is whether there are more of them this year than usual. I'm not yet convinced there are.

What makes this worse is that every four years for my entire adult life I've been hearing this same story. Every election year, Time magazine sends Joe Klein or some other worthy out to the heartland to talk to real people, and every time they come back and write long cover stories about how angry people are. Every. Single. Election. I guess I've gotten a little jaded about it.

In any case, the reason I keep hammering on this is because I want to understand this disconnect between qualitative and quantitative assessments. If people really are angrier than usual, it ought to show up somewhere. Why doesn't it?

POSTSCRIPT: So what does account for the popularity of Bernie Sanders and Donald Trump? Here's my guess:

  • Middle-class wages have been stagnant for the past 15 years while the rich have gotten ever richer, and resentment over this really is growing.
  • In the case of Trump, there's extensive evidence that racial animus is at the heart of much of his popularity.
  • In the case of Sanders, I think it's a combination of a genuine leftward movement among young voters and an unfortunate but visceral dislike of Hillary Clinton. If someone like Obama were running again, Sanders would never have gotten any traction.

There's a lot more, of course. But if you asked me for a nickel summary, this would be it.

Politico interviewed "nearly five dozen Republicans" recently and heard a consistent message: nobody with even a trace of policy cred wants to work in a Donald Trump administration. "The A-level people, and there are not that many of them to begin with, mostly don’t want to work for Trump," said a former Bush official. "He will cut the A-level bench of available policy talent at least in half, if not more."

But not to worry. This is all part of the plan:

A source familiar with Trump’s thinking explained that the billionaire businessman was reluctant to add new layers of policy experts now, feeling it would only muddy his populist message that has been hyperfocused on illegal immigration, trade and fighting Islamic extremists.

“He doesn’t want to waste time on policy and thinks it would make him less effective on the stump,” the Trump source said. “It won’t be until after he is elected but before he’s inaugurated that he will figure out exactly what he is going to do and who he is going to try to hire.”

That's a confidence booster, isn't it? We'll all have to wait until after the election for Trump to tell us what he actually plans to do. In the meantime, he's just going to keep tossing out anti-Muslim, anti-Mexican, and anti-Chinese bombs because that seems to appeal to his fans. But once he wins, he'll be the most presidential president in the history of presidenting.

Donald Trump last week:

I’ve borrowed knowing that you can pay back with discounts. I’ve done very well with debt....Now we’re in a different situation with the country, but I would borrow knowing that if the economy crashed, you could make a deal. And if the economy was good it was good, so therefore, you can’t lose.

Donald Trump today:

It was reported in the failing New York Times and other places that I want to default on debt. You know, I'm the king of debt. I understand debt better probably than anybody....But let me just tell you, if there is a chance to buy back debt at a discount, in other words, interest rates up, and the bonds down, and you can buy debt, that’s what I'm talking about.

....But in the United States, with bonds that won't happen because in theory the market doesn't go down so that you default on debt and that's what happened. So here’s the story, just to have it corrected. If we have an opportunity where interest rates go up and you can buy debt back at a discount, I always like to be able to do that, if you can do it. But that’s all I was talking about. They have it like I'm going to go back to creditors, and I am going to renegotiate and restructure debt, it's ridiculous and they know it's ridiculous.

I'll give Trump this much: it was ridiculous and everyone knew it was ridiculous. It was pure Trump bullshittery. But here's the thing: even if you accept that this was what Trump was talking about, it's still ridiculous. The US government isn't a third party trading Treasury bonds. It's the issuer of the bonds. If interest rates go up, should the Treasury refinance? No: it should keep paying the lower interest rates on its outstanding bonds. But what if interest rates go down? The answer is still no. Let's hand the mic over to the Economist:

The interest rate on Treasury bonds is fixed. If the government issues debt during a low-rate period, that's good news. To refinance that debt in a period of higher bond yields [i.e., lower bond prices], the government would have to borrow from the market at much higher rates....Currently, most of the US's longer-term debt trades above par value because it was issued at a time when bond yields were higher. For example there is a bond with a 2030 maturity and a 6.25% coupon; it trades at 152 cents on the dollar. Would it be worth offering 155 cents on the dollar upfront, and refinancing the debt at today's lower rates? The dollar value of US debt would rise, not fall, in such circumstances.

In short, any voluntary deal with the market would require the government to pay fair value. And unless you think the Treasury bond market is mispriced (and it is the most liquid market on the planet), the government is unlikely to profit. It might be sensible for the government to alter the patterns of new Treasury issuance; borrowing long-term to lock in low rates for a generation. The Treasury has discussed the idea of refinancing illiquid bonds to improve market liquidity. But that is quite a different idea from Mr Trump's proposal; the interest savings would be trivial.

Here's the scary thing: debt really is one of the few things that Trump probably knows a bit about. It's certainly bitten him in the ass often enough. And yet he still has no idea how it works. He continues to think that the federal government is basically the same thing as a trader on the Goldman Sachs trading desk.

It's not. Whatever Trump is talking about, it won't work. Sovereign debt is sovereign debt, and it gets paid off at 100 cents on the dollar. Trump may think everyone except Trump is an idiot, but I'm pretty sure the folks at the Fed and the Treasury are already keenly aware of how to handle open market operations to maximize value for the US government. Someone at the Trump Organization needs to clue him in about how all this stuff works.

Obamacare Continues to Not Be Doomed

Veronique de Rugy predicts disaster for Obamacare once again:

The bottom line is that after slow start, insurance companies find themselves having to increase premiums a fair amount. It seems that while for now subsidies may cover the pain for individuals, they probably won’t be able to after this year, at which point insurance companies will have to stomach the full cost of their losses due to the expiration of the reinsurance and risk-corridor programs. There soon won’t be enough subsidies to offset the premium hikes.

We've heard this pretty much every year: insurers are requesting huge premium increases! We're doomed! Perhaps a bit of perspective would be helpful:

  • Insurers lowballed their Obamacare prices initially, coming in with premiums that were less costly than CBO projections. Higher prices were always inevitable.
  • Every year, insurers request big increases. They don't get them. They get moderate increases.
  • Whatever happens, this is the free market at work, not some defect in Obamacare. If high premiums are truly what conservatives care about, we can fix that any time we want. Just ask Canada how to do it—or Sweden or Germany or Spain or Japan or pretty much any other advanced country on the planet.

Life isn't perfect. Obamacare isn't perfect. Health care is an expensive service, and health care insurance is expensive too. But so far Obamacare has done a pretty good job of keeping costs reasonably well contained. I'd wait until the end of the year before yet again declaring that it's a failure and yet again being wrong.

Here's An Idea For Urban Living

A couple of days ago I read a post at New York magazine about a new kind of apartment:

This weekend, residents will begin moving into New York’s newest experiment in communal living: a blocky red-and-white building in Williamsburg, nestled snugly against the BQE. It’s run by the company Common, which sells “co-living," a relatively new product that’s a start-up version of rental roommate shares.

Click the link for the full story, but it brought to mind a random thought that's been on my mind for a long time. I've never mentioned it since it's light years outside my wheelhouse of knowledge, but it's Monday, so why not?

As near as I can tell, the Common approach is a building full of bedrooms of various sizes and prices. There are common bathrooms and dining areas in various places, and the rent ranges from $2,250 to $3,190. But if you're going to go the dorm route, why not do it better? Take a look at the floor plan below:

I chose the bedroom size because it's the size of my master bedroom. It's plenty large and comfy, with room for two, lots of closet space, and a nice private bathroom. Five of these bedrooms enclose a 1,100 square foot common area, which is about the size of the entire downstairs of my house. In real life it would be divided into various areas, either via walls or potted plants or what have you. There's plenty of space for a large kitchen in the center and various dining, seating, and TV rooms around it. The entire thing is 3,162 square feet, and every bedroom has two doors: one into the common area and a private door to the outside. The building would presumably have the usual amenities depending on how upscale it is: fitness center, laundry facilities, storage areas, etc.

So I'm curious: why doesn't anyone do this? Are there regulatory issues? Has it been tried and failed? It seems like a decent idea that provides a lot of space for the money, and plenty of privacy too if you build the bedrooms right (i.e., good soundproofing). If five roommates are just too many, you could do the same thing with three bedrooms at a somewhat higher cost.

Obviously this isn't ideal for everyone, but especially in high-cost urban areas it seems like a decent compromise between commune and private apartment that could be rented out for a reasonable price. Has this been done? If so, is there something I'm not thinking of that kept it from catching on?

In a conversation with Dean Baker recently, I learned something interesting. This won't be new to anyone deeply familiar with inflation statistics, but it was new to me. Maybe it will be new to you too.

The general subject is the stagflation of the 70s, which ushered in supply-side economics and the Reagan era. More specifically, the issue is the measurement of inflation during part of this era. Housing costs are incorporated into the CPI by measuring rents, but prior to 1982 it was done by directly measuring the price of buying a house. In an era when interest rates were steady, this didn't matter much, but when interest rates went crazy in the mid-70s it made a big difference, overstating inflation by about two percentage points. If you correct for this, and also take a look at exactly when the worst periods of stagflation occurred, you get this:

If you correct the inflation figures and account for the two oil shocks of the 70s, the period from 1970-85 looks remarkably steady. Inflation and GDP growth are both running at about 4 percent for nearly the entire time.

I don't have the chops to relitigate this, but the question it raises is: Did stagflation ever even exist? Was there anything seriously wrong with the economy of the 70s other than a pair of oil shocks we had no control over? Would the economy have recovered normally after the second oil shock even if Paul Volcker hadn't created a huge recession? Feel free to litigate in comments.

The White House is propagating the conventional wisdom about non-compete employment clauses:

The main economically and societally beneficial uses of non-competes are to protect trade secrets, which can promote innovation, and to incentivize employers to invest in worker training because of reduced probability of exit from the firm. However, evidence indicates that non-competes are also being used in instances where the benefit is likely to be low (e.g., where workers report they do not have trade secrets), but the cost is still high to the worker.

This is in response to the increasing use of non-competes among low-income workers, which is a particularly egregious bit of overreach. You may recall the case of Jimmy John's, which apparently considers its sandwich-making process so unique and innovative that it forces its employees to sign non-competes. No working at Subway for you!

I have a different view of this whole thing since I've spent my entire life in California, where non-compete agreements have been generally unenforceable for over a century. As near as I can tell, we nonetheless have a thriving software market, plenty of lawyers, a prosperous content industry (Hollywood), and a generally dynamic economy. Our lack of non-competes doesn't seem to do us any harm at all. In fact, it might be responsible for a lot of our growth.

So forget the difference between high-powered jobs and sandwich makers. If it were up to me, I'd just outlaw non-competes nationally. It would help empower workers and it would probably be an overall net positive for the economy. The corporate hacks would howl, but they all do business in California and know perfectly well that they can survive just fine without them.

Are pro-business reforms good for economic growth? You'd think so, but the evidence is actually unclear. So Evan Soltas tried a different approach to the question: taking a look at countries that had big, sustained jumps in the World Bank's Doing Business Index:

This is, I think, a reasonable way of doing things: Even if you are distrustful of the index, as am I, if the World Bank says that your country is in the top 5 percent of reformers in some year, there's probably something to that. In my sample, it took at least a 10-point increase in the ease of starting a business to qualify as a "reform" year. That is like going from India to China.

A bit of Greek-letter math later, he has an equation that links per-capita GDP growth with the World Bank index:

What I find is that neither term has a significant coefficient. In fact, I can bound the effect of pro-business reforms quite precisely around zero, with a 95-percent confidence interval for the effect of a 10-point reform on the level of per-capita output of -1.4 percent to 3.5 percent. That is far away from the claim that such a reform could double per-capita output.

Now, this isn't nothing. The reforms led to an increase in economic growth of about 1 percent. And especially in poor countries, there may be other compelling reasons to adopt pro-business reforms. But if Soltas is right, the economic benefits are modest.

Sadly, Soltas did not put this in colorful chart format, which he needs to do if he expects to meet the expectations of his fans. But the bottom line is simple: the United States is already one of the top performers in business friendliness. Incremental improvements are all that's left to us, and the impact of these improvements plateaus at high levels anyway. More than likely, pro-business reforms in the US would have little to no effect on economic growth. Here's Soltas:

Maybe the lesson here is to beware the TED-talk version of development economics. Shortening the time it takes to incorporate a small business is not a substitute for deeper institutional reforms, such as those that support investment in human and physical capital, remove economic barriers that hold back women and ethnic or religious minorities, or improve transportation, power, and sanitation infrastructure. Easy pro-business reforms should not distract countries from pursuing changes that, while harder to make, we know to be richly rewarding in the long run.

Roger that.

The Washington Post's fact checker, Glenn Kessler, is upset with the way the press treats Donald Trump:

Most politicians will drop a talking point if it gets labeled with Four Pinocchios by The Fact Checker or “Pants on Fire” by PolitiFact....But the news media now faces the challenge of Donald Trump, the presumptive Republican nominee for president. Trump makes Four-Pinocchio statements over and over again, even though fact checkers have demonstrated them to be false. He appears to care little about the facts; his staff does not even bother to respond to fact-checking inquiries.

But, astonishingly, television hosts rarely challenge Trump when he makes a claim that already has been found to be false.

This has been a problem during the primaries, but I'm pretty sure it's set to change. Now that Trump is the presumptive nominee for a major party, with a real shot at becoming president, he just can't get away with being the bullshitter-in-chief. The press is going to treat him a lot—

Hmm? What's that? I should check out Meet the Press this morning? Sigh. What fresh hell awaits?

Trump has been retailing this particular tidbit of bullshit for months, and it's not just untrue, but obviously untrue. Conservatives know it perfectly well, because they're constantly talking about the high tax rates in Sweden and Germany and France and so forth, and trying to demonstrate that these high tax rates have strangled their economies. There's really no disagreement about this.

But there's good news! Since Trump has said this before, I already have the relevant chart at hand. No need to waste my time looking up the numbers and tossing them into Excel. So here it is. Not only are we not the highest, we're the third lowest among rich economies:

I honestly don't care much about Ben Rhodes, but reaction to David Samuels' profile of him is getting out of hand:

Everyone is circling the wagons around Laura Rozen, and that's fine. She's a very good reporter. But once again, let's take a look at what the Times profile actually says. It's about the campaign to sell the Iran nuclear deal:

The person whom Kreikemeier credits with running the digital side of the campaign was Tanya Somanader, 31, the director of digital response for the White House Office of Digital Strategy, who became known in the war room and on Twitter as @TheIranDeal. Early on, Rhodes asked her to create a rapid-response account that fact-checked everything related to the Iran deal.

....For those in need of more traditional-seeming forms of validation, handpicked Beltway insiders like Jeffrey Goldberg of The Atlantic and Laura Rozen of Al-Monitor helped retail the administration’s narrative. “Laura Rozen was my RSS feed,” Somanader offered. “She would just find everything and retweet it.”

A few points:

  • This quote comes from Somanader, not Rhodes.
  • An RSS feed is something you read. Somanader seems to be saying only that she relied on Rozen to keep her up to speed on who was saying what in the Twitterverse.
  • The idea that Rozen was a "handpicked Beltway insider" comes solely from Samuels' framing of the quote, not from what Somanader actually said.

It's common in profiles for authors to intersperse their own impressions with actual quotes. There's nothing wrong with that. But in this profile, Samuels goes overboard. It's possible that every quote is well framed, but he'd have to produce far more context to demonstrate that. As it stands, he seems to be a little desperate to spin quotes to make points he wants to make.

This is why I said in my previous post that you have to read Samuels' profile very carefully. Take a look at what people actually said vs. what Samuels says in his own voice. The quotes themselves are more anodyne than they seem.