2011 - %3, October

Breaking: Good Reviews are Good for Business

| Mon Oct. 3, 2011 8:04 AM PDT

Via Adam Ozimek, here's a handy chart that demonstrates something you probably thought you knew already: a high rating on Yelp is good for business. Harvard's Michael Luca did a clever study that took advantage of "discontinuity effects." Yelp rounds off its rating for public consumption, so a restaurant that crosses the boundary from, say, a rating of 3.2 (rounded down to three stars) to a rating of 3.3 (rounded up to 3.5 stars) gets an extra boost on its Yelp page. There's probably very little difference between 3.2 and 3.3, so if a restaurant's revenue increases it's most likely due solely to its Yelp rating.

Sure enough, that's what happens. As the chart on the right shows, revenue remains fairly flat as ratings go up slightly and then suddenly jumps as a restaurant passes the rounding-off point and gets an extra half star:

I present three findings about the impact of consumer reviews on the restaurant industry: (1) a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue, (2) this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and (3) chain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation. I then test whether consumers use these reviews in a way that is consistent with standard learning models. I present two additional findings: (4) consumers do not use all available information and are more responsive to quality changes that are more visible and (5) consumers respond more strongly when a rating contains more information.

How robust is this result? I'm not sure. Luca's regression suggests that revenue actually goes down except around the discontinuity, which is peculiar. Just eyeballing the chart without any lines drawn in, I can imagine instead drawing a simple upward-sloping regression line showing that restaurant revenue increases smoothly as reviews get better. That eliminates the anomalous downward trend, and it's not instantly clear that the standard error would be much bigger than doing it Luca's way. Unfortunately, the Greek-letter section of the paper is over my head, so I'm not sure. Yelp fans demand further research on this crucial topic.

UPDATE: Just to give you an idea of what I'm talking about, here's the chart redrawn with a single upward-sloping regression line:

This is just eyeballed, so don't take it seriously. Still, the data points are really scattered, and the fit looks equally poor on both Luca's version of the chart and mine. It's not clear to me that the discontinuity effect is really there.

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How Rick Perry Fed the Subprime Mortgage Monster

| Mon Oct. 3, 2011 7:54 AM PDT
Texas Gov. Rick Perry.

For all of Texas Gov. Rick Perry's jeremiads against big government and evil regulations, his state won a few admirers during the housing bubble for its surprisingly tough lending laws. Not that Perry didn't try to lure subprime lenders to Texas, plying them with tens of millions in taxpayer cash just as they ramped up their risky home lending.

In the mid-2000s, the Associated Press reports, Perry enticed then-booming lending giants Countrywide Financial and Washington Mutual with $35 million in state tax grants to grow their operations in Texas and create 11,000 new jobs. At the same time, those lenders were diving headlong into more risky lending, while the Perry administration dismissed the risks of subprime mortgages as blown out of proportion. The source of Perry's hand-outs to Countrywide and Washington Mutual was the Texas Enterprise Fund, a multi-billion-dollar economic development honeypot that critics have blasted as a slush fund used to funnel money to political allies and donors.

Here's more from the AP:

The AP analysis found that Washington Mutual, Countrywide, and their subsidiaries boosted risky lending in Texas within a year after receiving grants from the Texas Enterprise Fund. In 2004, only one out of every 100 Washington Mutual loans in the state was originated to homeowners with less-than-perfect credit. The next year, that figure rose to more than one in four.

Countrywide's lending volume also boomed. In 2004, 14 percent of the company's loans in the state were given to high-risk borrowers, but the following year—when Countrywide received its first $10 million disbursement from the fund—the rate of risky loans jumped to nearly one in three, the AP's analysis found. Texas ranked No. 3 for the number of risky mortgages underwritten by Countrywide, behind only Florida and California.

[...]

Countrywide pledged to create thousands of new jobs, but later shed more than that in nationwide layoffs. That came as Countrywide and WaMu gave checks to Perry's re-election campaign, including $2,500 from WaMu's political action committee as late as March 2008. The companies gave more than $15,000 in total contributions, state records show.

Meanwhile, Countrywide faced problems in Texas. Perry's own attorney general reached an agreement with the lender in 2008 that would give millions to customers who lost their homes to foreclosure. The attorney general's office began its investigation that year amid allegations that Countrywide encouraged homeowners to accept loans they could not afford.

Rick Perry's Spectacular Fall From Grace

| Mon Oct. 3, 2011 6:34 AM PDT

Just to recap, in less than two months Rick Perry has:

  1. Suggested that maybe Ben Bernanke should be lynched.
  2. Declined to back off his contention that Social Security is an unconstitutional Ponzi scheme.
  3. Called climate change a "contrived phony mess" that was cooked up by scientists who have "manipulated data so that they will have dollars rolling in to their projects."
  4. Pissed off the conservative base by defending his decision to (in Michele Bachmann's immortal words) give "government injections" to "innocent little 12-year-old girls." Said Perry condescendingly: "What I don't get is what parents don't understand about an opt out."
  5. Further pissed off the conservative base by suggesting that if you disagree with his policy on in-state tuition for illegal immigrants, "I don't think you have a heart."
  6. Mangled a prepackaged debate attack on Mitt Romney so badly, and then followed up with a statement on Pakistan so inscrutable, that even his supporters started to wonder if he has a three-digit IQ.
  7. Proposed that US troops should be used to fight Mexican drug lords. In Mexico.
  8. Had to defend himself against revelations that his family leases a hunting spot called "Niggerhead."

I'm putting this up because you can't truly grasp the full scope of Perry's train wreck campaign unless you see the whole list in one place. It's really pretty stupendous. Has any top-tier presidential candidate in history ever imploded quite this quickly?

The Onion Predicts the Future: Al Qaeda vs. 9/11 Truthers

| Mon Oct. 3, 2011 6:31 AM PDT
A very blunt sticker from the 9/11 Truth movement.

The website of Inspire, a English-language propaganda magazine believed to be run by Al Qaeda in the Arabian Peninsula (and spearheaded by the recently assassinated, tech-savvy cleric Anwar al-Awlaki), took a shot at Iranian President Mahmoud Ahmadinejad last week for intimating that 9/11 was an inside job. In an interview with the AP during his visit to the UN General Assembly last month, Ahmadinejad said that "[a] few airplanes without previous coordination known to the security forces and the intelligence community in the United States cannot become missiles and target the heart of the United States," and also suggested that he, as a former civil engineer, believed it was entirely possible that the World Trade Center was brought down by a controlled demolition. (David Corn has a nice piece on the dangers of trutherism here.)

In response, an irate Al Qaeda op-ed writer took to the magazine's website to push back against the notion that the Sunni militant group wasn't the sole perpetrator of mass murder on 9/11. Abu Suhail, the article's author, begins his rebuttal with (of all things) a blunt appeal to "logic":

Why would Iran ascribe to such a ridiculous belief that stands in the face of all logic and evidence?...For Iran, anti-Americanism is merely a game of politics. It is anti-American when its suits it and it is a collaborator with the U.S. when it suits it.

Suhail goes on to write that the Iranian regime and Shiites are envious of Al Qaeda's "success" and that they wish to "discredit Sept. 11 [with] conspiracy theories" because they only pay "lip-service to jihad against the Great Satan."

Iran's state-owned news network Press TV then fired back by regurgitating Ahmadinejad's Truther-esque statements in a piece published on Thursday, which asserted that "reports released by al-Qaeda are usually believed to be produced by the US Central Intelligence Agency." Here's an excerpt from the article that reads like it was copy-and-pasted directly from a "Loose Change" video:

There is evidence indicating that once the twin towers were hit by the planes, their foundations were blown up so that they would collapse. The archive files on 9/11 attacks also suggest that the odds are that the Pentagon was struck by missile not plane...[T]here has been no convincing evidence that a number of young Arab people could have masterminded such attacks especially since they could have not known how to fly fully automated airplanes.

The Al Qaeda/Iran back-and-forth also serves as another example of how The Onion can pretty much predict the future. Remember the eerily prescient piece on George W. Bush reviving war, jingoism, and economic recession...published in January 2001? Well, here's a video from early 2008 in which an Al Qaeda fighter debates a 9/11 conspiracy theorist:

"How would you like it if you spent, you know, two months in a moutain cave, sleeping on rocks, planning something really special, only to have someone take the credit away from you?"

Sound familiar?


9/11 Conspiracy Theories 'Ridiculous,' Al Qaeda Says 

Emails Reveal Close Ties Between TransCanada Lobbyist and State Dept.

| Mon Oct. 3, 2011 4:55 AM PDT
Construction on the existing Keystone pipeline.

Emails released by the State Department through a Freedom of Information Act (FOIA) request show a close relationship between the top lobbyist for energy company TransCanada and a US diplomat—a relationship that environmental groups say has compromised the agency's ability to make a fair decision on the company's proposed Keystone XL pipeline.

The ties between Paul Elliott, TransCanada's director of government relations, and the State Department have come under considerable scrutiny as the company has sought the agency's approval to build a 1,661-mile pipeline from Alberta, Canada, to Texas. Before going to work for TransCanada, Elliott served as the national deputy director for Hillary Clinton's 2008 presidential campaign. The environmental group Friends of the Earth filed a FOIA request in December 2010 seeking emails and other documents concerning Elliot's contact with State Department employees. (The group released a first round of documents several weeks ago.) The more notable emails in this most recent round is correspondence between Elliott and Marja Verloop, the counselor for environment, science, technology, and health at the US embassy in Canada. Verloop appears to be a key point of contact between the embassy and TransCanada.

In a September 2010 email, Verloop celebrates after Elliott informs her that he's secured support for the pipeline project from Sen. Max Baucus (D-Mont.). "Go Paul!" she writes. "Baucus support holds clout." Other emails highlight a friendly relationship between the two, with Verloop asking Elliott when he planned to come up to Ottawa again. "When are you coming up to visit?" she wrote. "It's a snowy winter wonderland here this morning." (See all the emails here, here, here, here, and here.)

To pipeline critics, the most significant messages may be an exchange in which Verloop and her boss, US Ambassador to Canada David Jacobson, discuss an apparent understanding between the State Department and TransCanada that the company would later seek to raise the pressure used to pump oil through the pipeline—even though the company said publicly it would do the opposite. To alleviate concerns about pipeline safety, TransCanada had announced in August 2010 that it would lower the pressure that it planned to use in the pipeline, in response "to the concerns of the public and various political leaders," as Robert Jones, the vice president of TransCanada's Keystone pipelines division, said at the time. The lower pressure would conform to US standards and was meant to alleviate concerns about the pipeline rupturing.

But in a July 26, 2010 email Elliott told Verloop that the company still intended to apply for permission to increase pressure in the pipeline when "there is better information in the public domain on the engineering safety of such pipe design and operation." Verloop forwarded the email to Jacobson the following day, and described TransCanada as "comfortable and on board" with the decision-making process. The exchange indicates that the State Department was aware of TransCanada's intention to increase the pressure in the future, even as the company was telling the public a different story.

TransCanada's decision to decrease the pipeline pressure helped the company win high-profile support from lawmakers including Sen. Jon Tester (D-Mont.), who issued a press release touting the change as a "win for energy development" and a "win for higher safety standards in rural America."

Also telling is a December 2010 exchange between Verloop and Elliott, shortly after environmental groups started raising concerns about his ties to the State Department. Verloop forwarded a story to him from Energy and Environment Daily about the concerns. In his reply, Elliot noted that he had a "sick feeling" over the complaints. Verloop responds with encouragement: "[I]t's precisely because you have connections that you're sought after and hired."

The emails also make it clear that Elliott was actively lobbying congressional lawmakers and State Department officials for at least a year-and-a-half before he officially registered as a lobbyist. According to lobbying disclosure records, Elliott did not officially register until December 16, 2010—three days after Friends of the Earth filed its FOIA request concerning his contact with the State Department. FOE has asked the Department of Justice to investigate whether Elliott violated the Foreign Agents Registration Act by failing to register earlier as a lobbyist for the Canadian company.

The messages, says Friends of the Earth climate and energy director Damon Moglen, should disqualify the State Department from rendering a determination both the environmental impact of the pipeline and whether the pipeline project is in the national interest.

"What you really see is an agency that was supposed to be conducting an independent, objective, searching, science-based environmental analysis was basically working in cahoots with this oil company," Moglen told Mother Jones. "We're not just talking about bias, we're talking about complicity."

A State Department spokesman disputed that interpretation, however. "We are committed to a fair, transparent and thorough process," the spokesman told Mother Jones. "Throughout the process we have been in communication with industry as well as environmental groups, both in the United States and in Canada. These conversations are similar to the public meetings we held last week. We listen to all opinions, but there is much more that goes into the national interest determination decision."

We're Still at War: Photo of the Day for October 3, 2011

Mon Oct. 3, 2011 2:57 AM PDT

US Army Staff Sgt. Brendan Quinn, from Foxboro, Mass., of 1-182 Infantry Regiment, Charlie Company, security force for Provincial Reconstruction Team Farah, provides security while on patrol, Purchaman District, Farah Province, Afghanistan, Sept. 26, 2011. PRT members escorted members of Farah's Provincial Government to a shura where elders resolve community issues and communicate concerns to the provincial government. (ISAF photo/ USAF SrA Alexandra Hoachlander)

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Do Our Schools Still Offer Advanced Classes?

| Sun Oct. 2, 2011 10:01 PM PDT

A couple of weeks ago I read Rick Hess's piece in National Affairs complaining that our national mania for "closing achievement gaps" has badly shortchanged our top students. Teachers are now focused so resolutely on getting slower students up to grade level that very little attention is given to high performers who are already above grade level and therefore pose no risk of hurting a school's NCLB goals. As a result, our best students are left to languish in boring classes and are falling ever further behind the best students in other countries.

I didn't entirely understand Hess's argument. There was something missing that I couldn't quite put my finger on. Today, in a Room for Debate roundtable devoted to discussing Hess's piece, Michael Petrilli fills in the missing link:

Over the past two decades, “tracking” as traditionally practiced has been virtually eliminated from the vast majority of America’s schools — with the exception of mathematics at the middle and high school levels. Whereas a typical middle school might once have had three tracks (remedial, regular and honors) for almost every academic subject, most schools have collapsed all this into one class. At the high school level, Advanced Placement courses — once reserved for the academic elite — have now been democratized through open-admissions policies. It’s “all together now,” in a very real way.

Aha! There are no advanced classes anymore? Everyone is just lumped together in a single classroom without regard to ability? I didn't know that, which just goes to show how out of touch I am with modern schooling.

But wait. It only shows that if it's actually true. But is it? There are certainly elementary school gifted programs still alive and well in lots of places. And as Petrilli says, high schools are practically crawling with AP classes these days — and democratized or not, AP classes are still honors classes even if they've been watered down a bit from their original ideal. That leaves only middle school, which I really don't know anything about. But if tracking is, in practice, still alive in elementary school and high school, then there's still quite a bit of tracking left.

So now I'm really confused. If this is really all about the demise of tracked classes, what's the story? I know that placement of kids in "vocational" tracks mostly ended decades ago, but basic academic tracking still seems to be very widespread. So what's the real complaint here? Teachers and parents with kids currently in school are invited to educate me in comments.

Quote of the Day: Rick Perry's Ranch

| Sun Oct. 2, 2011 12:07 PM PDT

From Matt Yglesias, dryly noting the current conservative attitude toward the possibility of lingering racism in our fair republic:

I’ve learned in long years of experience blogging about American politics that there are no racists in the United States. Certainly if there are any, they’re not white people. And certainly if there are any racist white people, they’re not conservatives. So let’s just say that if you’re a Republican county commissioner in Minnesota, this is the kind of thing that might lead you to wonder if Perry’s brand of politics will play well outside the Old Confederacy where people sometimes misunderstand this kind of thing.

"This kind of thing," of course, is the news that the Perry family hunting spot has been known for decades as "Niggerhead." I know I'm repeating myself, but: Does Mitt Romney have a pact with the devil or something? Not only does he seem strangely invulnerable to attacks from his opponents, but his opponents also seem to have an almost uncanny ability to self-destruct. It's just amazing.

Awkward Facts Kill the Regulatory Uncertainty Zombie

| Sun Oct. 2, 2011 10:52 AM PDT

Is a tidal wave of both existing and upcoming new regulation responsible for the sluggish state of the economy? This is one of those arguments that's so transparently dumb that I sometimes think its only purpose is to force liberals to waste time arguing about it. It's like that old story about LBJ spreading a rumor that his opponent was a pig-fucker. You can't say that, it's a lie, Johnson's campaign manager told him. "I know," he replied, "I just want to make him deny it."

Maybe that story is true, maybe it isn't. But it fits. Even when we're denying that regulations are responsible for our poor economy, we're talking about regulations. And the more people hear about regulations, no matter what the context, the more plausible it seems like they might be a problem. And of course, it also distracts us from talking about other stuff. It's a twofer.

Still, you gotta fight it. EPI's Larry Mishel wrote a pretty definitive takedown while I was off in the Bay Area with lousy WiFi reception, and among other things he notes that business investment—which ought to be highly sensitive to the regulatory climate—has recovered considerably better over the past two years than it did during the first two years of the Bush recovery:

The data show that investment has increased more in this recovery than in the prior two recoveries and roughly the same as that of the 1980s recovery. It is interesting to note that there was no growth in investments (as a share of GDP) in the George W. Bush recovery. That means that this recovery, with Obama regulations pending, is far more investment-led than the recovery under the deregulatory Bush administration. So, investment does not look like it is being held back, at least relative to other recoveries and the size of the market.

The chart is below. Bottom line: If demand were high but regulation was holding back recovery, then investment levels would be weak, employer surveys would be full of complaints, and businesses would be making lots of temporary hires in order to sell more stuff now without the danger of adding permanent payroll. But none of these things is true. Our problem is high debt levels and weak demand, not business-deadening regulations.

The Civil War is No Excuse for Presidential Assassinations

| Sun Oct. 2, 2011 9:52 AM PDT

Writing today about the drone strike that killed Anwar al-Awlaki, Max Boot casually dismisses concerns about the president's authority to target U.S. citizens for execution:

A few civil libertarians are raising questions about whether the U.S. government had the right to kill an American citizen without a trial....That's like asking if it was lawful to kill Confederate soldiers at Gettysburg. Like the rebels during the Civil War, Awlaki and Khan gave up the benefits of American citizenship by taking up arms against their country. They, and other Al Qaeda members, claim to be "soldiers" in the army of Allah; it is only fitting that their avowed enemy, the Great Satan, would take their protestations seriously and treat them just like enemy soldiers. If it's lawful to drop a missile on a Saudi or Egyptian member of Al Qaeda, it's hard to see why an American citizen should be exempt.

I've heard this argument more than once, and I'd just like to point out how chilling it is. One of the reasons that liberal democracies constrain the use of force against their own citizens more than they do against noncitizens is because national governments have a very wide array of coercive powers already available to track and control their own citizens. Since this coercive power is inherent in the state, it's wise to restrain it lest it get out of control. Likewise, national governments don't generally need to execute their own citizens without trial because they have lots of other alternatives available to them. At a practical level, they often don't have this power over noncitizens, so killing them is sometimes the only option available.

But this distinction also applies to location: national governments have far more police power available within their own territory than they do overseas. In Awlaki's case, you might argue that if he had been living in, say, South Dakota, the government would have been constrained from killing him without trial because it has the power to deal with him judicially instead. But since he was living in Yemen, it didn't, and a targeted assassination was the only option open.

But Boot isn't willing to concede even that. The Civil War analogy suggests that even if Awlaki had been living within the United States he would have been fair game for a presidential assassination merely for belonging to a group that calls itself an offshoot of al-Qaeda.

In fact, I doubt that Boot believes this. He does not, in truth, think that President Obama can empower the FBI to roam the country and gun down American citizens who are plotting against us, whether they belong to al-Qaeda affiliates or not. Nor does he think that the 1st Cavalry Division can do this, even though that's exactly what they did during the Civil War. He's merely using the Civil War analogy because it was handy and seemed like it might sound plausible to readers who didn't think about it too much.

As it happens, I don't think the Awlaki precedent means that President Obama is going to go hog wild and start mowing down Americans overseas. I don't think that President Rick Perry would, either. But there are good and sound reasons that presidents are constrained in their ability to unilaterally kill U.S. citizens, regardless of where they live, and we allow these bright lines to be dimmed at our peril. Unfortunately, the war on terror has made poltroons out of every branch of government. The president hides behind the post-9/11 AUMF, using it as a shield to justify any action as long as it's plausibly targeted at al-Qaeda or something al-Qaeda-ish. Congress, which ought to pass a law that specifically spells out due process in cases like this, cowers in its chambers and declines to assert itself. And the courts, as usual, throw up their hands whenever they hear the talismanic word "war" and declare themselves to have no responsibility.

If the president wants the power to kill U.S. citizens who aren't part of a recognized foreign army and haven't received a trial, he should propose a law that spells out when and how he can do it. Congress should debate it, and the courts should rule on its constitutionality. That's the rule of law. And regardless of whether I liked the law, I'd accept it if Congress passed it, the president signed it, and the Supreme Court declared it constitutional.

However, none of that has happened. The president's power in this sphere is, in practical terms, whatever he says it is. Nobody, not liberals or conservatives, not hawks or doves, should be happy with that state of affairs.