Our squirrel was back today. I know, I know, it's just a squirrel. Who cares? But there was some doubt about my report of its coloring the last time I mentioned it, and this time I got a picture of our little friend — which is harder than it sounds. They're quick little things. Quicker than the autofocus on my camera, anyway.

So, anyway, here it is, nature red in tooth and claw. Domino was fascinated for a while until the squirrel did something that scared her off. I can't imagine what, since it was hopping from tree to tree the whole time and never got closer to her than ten feet. But something happened, and she made a dash around the side yard. In any case, I assume that our resident squirrel experts can tell me what kind of squirrel this is now that I have a picture? Or maybe embarrass me by telling me that it's actually a chipmunk or something?

This soothing nature break has been brought to you by Emerald Nuts, the favorite of nut-hoarding squirrels everywhere. Frenetic political blogging will resume shortly.

People used to jokingly refer to Steve Jobs's "reality distortion field," his ability to convince the public that Apple's products existed on a plane of revolutionary awesomeness that no other company in history had ever matched. This is pretty much how I feel when I listen to Republican debates. They seem to take place in some kind of weird extra-dimensional bubble in which mundane laws of evidence and logic are no longer considered necessary. Paul Waldman captures this magical thinking in last night's debate:

  1. Health care in general, and Medicare in particular, are bankrupting our country.
  2. But government should never try to figure out which treatments are effective.
  3. Medicare should pay for any treatment anyone wants, regardless of whether it works or what it costs.
  4. If an insurance company refuses to pay for a procedure, that's their right as actors in the free market; if Medicare refuses to pay for a procedure, that's Washington bureaucrats trying to kill you.
  5. We need to cut Medicare benefits, because don't forget it's bankrupting our country.

That's about the shape of it: Medicare costs too much, but all proposed cuts to Medicare are a death sentence for seniors. Unless, of course, those cuts are really, really deep and come from Paul Ryan. Don't try to make sense of it. It will just make your head hurt.

Via Tyler Cowen, here's a fascinating bit of research from Jialan Wang based on Benford's Law. Benford's Law tells us about the distribution of digits in many kinds of tabular data, including financial data. The digit 1 shows up 30.1% of the time, 2 shows up 17.6% of the time, all the way to 9, which shows up 4.6% of the time. If you examine some financial data, and the digits show up in the wrong proportions, it probably means the books have been cooked.

Well, guess what? Back in 1960 corporate reports followed Benford's Law almost precisely. Today? Not so much. The chart below shows deviations over time for three different industries. Finance took a big leap in 1980, when the S&L scandal was taking off, and then leveled out. IT and manufacturing took smaller jumps in the early 80s, bigger jumps during the dotcom era, and then leveled out at about the same rate as finance. But all three industries, and the business community as a whole, have deviations at much higher levels today than they did in 1960.

What does this mean? Possibly nothing. Maybe there's a plausible explanation. But what it probably means is that large corporations routinely fudge their figures far more than they used to. Wang puts it like this:

While these time series don't prove anything decisively, deviations from Benford's law are compellingly correlated with known financial crises, bubbles, and fraud waves. And overall, the picture looks grim. Accounting data seem to be less and less related to the natural data-generating process that governs everything from rivers to molecules to cities. Since these data form the basis of most of our research in finance, Benford's law casts serious doubt on the reliability of our results. And it's just one more reason for investors to beware.

I'm not surprised. But it would be interesting to do a similar study on European corporations to see if the same trend is evident. Is systematic book cooking mainly a Wall Street phenomenon, or has the entire world's business community been getting less honest over time?

I only saw half of tonight's debate because I forgot that Bloomberg even had a TV channel. When I remembered and went looking for it, I discovered that I do indeed get BloombergTV on my cable plan thanks to last year's upgrade to digital. So now I know. In the end, though, I ended up watching the streaming version anyway since that made it more convenient to make snarky tweets in real time.

Rick Perry continues to amaze. I mean, after his last disastrous outing, he must have known that Job 1 was looking like he was ready for prime time. Instead, he looked completely unprepared, as if he was surprised that people were still asking him actual questions instead of just nominating him on the spot. Check out this response to a Romney monologue on China and the decline of American manufacturing:

What we need to be focused on in this country today is not whether or not we are going to have this policy or that policy. What we need to be focused on is how we get America working again. That's where we need to be focused.

And let me tell you, we are sitting on this absolute treasure trove of energy in this country. And I don't need 999. We don't need any plan to pass Congress. We need to get a president of the United States that is committed to passing the types of regulations, pulling the regulations back, freeing this country to go develop the energy industry that we have in this country.

Holy cow. That's all he's got after three weeks of prep? We have to quit talking about "this policy or that policy," or worrying about Congress, and instead just man up and kick the economy in the balls? Urk. And when Karen Tumulty cross examined him over the similarity of his Texas investment fund to Solyndra, he looked like a deer in headlights even though you could have seen this question coming a mile away. Perry is barely ready for public access cable, let alone prime time.

(I got some grief a couple of months ago for suggesting that Perry just wasn't very bright: "Americans might not care if their presidents are geniuses," I said, "but there's a limit to how doltish they can be too." Anyone still want to give me any grief about that? I freely admit that this isn't the biggest reason he's falling in the polls, but I think it's one of the reasons. And it's a big reason he's losing the invisible primary: insiders are assessing his obvious unwillingness to put in even the minimal work needed to address simple questions in a debate and concluding that he's just flatly not up to the job.)

What else? Nothing really. The candidates in general continue to occupy some weird alternate universe where our biggest financial problem is that Wall Street is too regulated, our biggest health problem is that Medicare keeps denying treatments to old people, and our biggest economic problem is the intolerable burden of taxation we place on rich people. On an individual level, Rick Santorum continues to be bitter that so few people like him. Herman Cain continues to be a novelty candidate who can deliver sound bites with the conviction of a CEO giving a speech at a motivational seminar. Michele Bachmann continues to be out of it. And Mitt Romney continues to be strangely invulnerable to attacks. I know that Romney has so many negatives that it seems impossible for him to win, but somebody has to win, and I have a hard time seeing how it can be anyone else. The race is still his to lose.

Via Catherine Rampell, this chart shows the growth of Wall Street salaries compared to the salaries of everyone else in New York. It comes from an annual report by the New York State comptroller, and in my continuing quest to add value to other people's charts, I've adjusted the beginning numbers for inflation so you can see the growth rate more clearly. Wall Street salaries have risen 11.2% per year, while all other salaries have risen 1.8% per year.

Note also that after nearly destroying the world in 2008 and seeing their average salaries plummet to a mere $310,000 a year, things have already rebounded nicely for Wall Street. I guess it's because they've done such a great job of getting the economy moving again.

A few months ago I mused a bit about the accusation that Republicans are opposing every effort to create jobs because they know their election prospects are better if the economy is in the tank:

No serious person in a position of real influence really wants to accuse an entire party of cynically trying to tank the economy, after all. But it would sure make headlines if Obama decided to take up this ball and run with it. He'll never do it, because it wouldn't be postpartisan or pragmatic.

Obama himself still hasn't quite gone there. But today his campaign manager did, in a fundraising letter that took note of Republican efforts to block Obama's jobs bill:

Their strategy is to suffocate the economy for the sake of what they think will be a political victory. They think that the more folks see Washington taking no action to create jobs, the better their chances in the next election. So they're doing everything in their power to make sure nothing gets done.

I'd still like to see Obama say this directly. After all, he really doesn't need to worry about bipartisan comity anymore since Republicans have made it crystal clear that they aren't voting for any of his proposals no matter how nice he plays. So why not just tell the truth?

Greg Sargent rounds up reaction to the possibility that "moderate" Senate Democrats will sink Obama's jobs bill:

Obama has done what skittish Senate Dems and their aides asked him to do — he has waged a public campaign to build support for his proposals. Have we already forgotten that only a few short months ago, the papers were filled with quotes from anonymous Dems complaining that Obama had failed to (a) focus on jobs; and (b) use the bully pulpit to rally public support for job-creation proposals?

By any measure, Obama has addressed those complaints. As ABC News polling director Gary Langer put it the other day, Obama proved that "it’s possible to move the bar” when it comes to public opinion on jobs. And yet, now that Dems have finally made that pivot to jobs and are finally fighting it out on turf favorable to themselves; now that Obama has shown it’s possible to move public opinion in the direction of his proposals, despite his low approval numbers; and now that Obama and Dem leaders are hoping to use GOP opposition to the jobs bill to cast the GOP as the number one enemy of progress on the economy, a handful of moderate Dems are still prepared to help Republicans muddy those waters.

It is truly astonishing. Finally, Democrats have a chance to demonstrate a sharp, clear, popular difference with Republicans, and even then they can't manage to stand together and look like an actual governing party. What's more, this is basically the centrists' dream bill: stimulus now and deficit cutting in the long term. It's what all the folks yelling for a third party say they want. And Democrats are offering it up. 

This is one of the reasons, by the way, that I've never really been on board with the idea that Obama should have fought hard for lots of liberal policies even if they couldn't pass. "At least people would know where he stands," goes the mantra. But looking like a loser just isn't a good political strategy, and looking like you can't even control your own party, as such a strategy would inevitably highlight, is even worse. Even on a purely symbolic bill (since the House isn't going to pass it anyway), Democrats can't manage to get their act together. What a bunch of morons.

Karl Smith is trying to figure out what the real problem with the economy is:

Prices on the NASDAQ, for example, go up and they go down. That can be good or bad for you. But, the market clears. It doesn’t matter what happens in tech or to Pets.com or if we weren’t as wealthy as we thought we were or all kinds of other junk. The market clears.

Why aren’t markets clearing? This is the question. Why do I have houses piling up for sale? Why do I have workers filling out resume after resume? Why did I at the worst of the recession have inventories of real goods piling up at record rates? Why do I still have 2009 model year cars on my lots? Why do I have assembly lines that are not turning?

Why aren’t my markets clearing?

We lose a bunch of wealth fine. We got the balance sheets wrong fine. There is no new tech fine. There is not enough oil fine. All fine, whatever.

Why aren’t my markets clearing?

One reason, perhaps, is that markets aren't clearing by design. I'm stealing this idea from somewhere that escapes me at the moment, but if a bank is holding, say, equities in its portfolio, it marks those equities to market when the market goes down. Everyone does this. The price of a stock is whatever the stock market says it is on any given day.

Not so for housing. Banks will insist that we're just going through a "rough patch," and eventually housing prices will rebound. So they resist marking their real estate holdings to their true value and accepting the consequences. This is understandable, since in some cases the consequences are insolvency and complete failure. Still, with this toxic waste clogging their balance sheets, credit doesn't flow and markets don't clear.

This, of course, is something that was a hot topic of converstation back in 2008 and 2009, but if I had to guess, I'd say there's still a lot of delusional thinking like this in corner offices all over the financial world. Credit channels are blocked up because we still haven't faced up to the extent of the housing bust. Markets in general aren't clearing because one market in particular isn't being allowed to clear. I don't think that "fixing" the housing mess is the holy grail of getting our economy moving again, but it's probably a big part of it. Mark down the toxic waste, renegotiate underwater mortgages, and recapitalize the banks if necessary. It would be a good start.

Guns in Public

Yesterday, California governor Jerry Brown signed a bill that prohibits people from openly carrying handguns in public:

California has allowed weapons to be displayed in public, provided they are not loaded. Gun enthusiasts took advantage of that to gather at Bay Area Starbucks outlets last year with pistols on their hips. Police chiefs and sheriffs complained that panicked customers' calls were diverting them from chasing real criminals.

Sam Paredes, executive director of the advocacy group Gun Owners of California, said the ban could lead, paradoxically, to more carrying of handguns...."This situation will be a catalyst to unite all of the gun community in lawsuits," Paredes said. "The probable outcome is you will have far more people carrying concealed loaded guns as opposed to openly carrying unloaded guns.''

Handguns have never been one of my hot buttons, so I don't have a big emotional investment in this issue one way or another. But here's what I don't understand. As near as I can tell, the gun community has won an all but total victory over the past couple of decades. Democrats have almost universally given up on gun control as a losing issue, there's been no serious action on the federal front for years, and the Supreme Court in 2008 handed down the holy grail of gun rights, ruling in Heller that the Second Amendment guarantees a personal right to bear arms and then ruling a couple of years later in McDonald that this guarantee applies to states and local communities as well as the federal government.

So what's been the reaction? Well Heller and McDonald have spurred a rash of lawsuits as gun groups try to force communities to allow possession of handguns. That's entirely understandable, since this is their core issue. Beyond that, though, instead of basically taking a victory lap, gun groups have gotten ever more bellicose. Wayne LaPierre sounds like an utter lunatic with his talk of secret plans from the White House to take away everyone's guns. Alleged UN plots to ban handguns are on every gun owner's lips. And the latest front is for gun enthusiasts to swagger around with guns on their hips when they go to McDonald's to order an iced latte. Hell, the leading edge of this movement is demanding the right to take their guns everywhere: bars, schools, courtrooms, you name it. Not because there's any serious danger in any of those places, but just to show they can.

I dunno. Maybe this is just human nature. Maybe victory always makes people eager for more more more. But why don't they just accept their victory and bask in it instead? Get Heller and McDonald enforced around the country and call it a day. None of them cared about carrying guns around in public twenty years ago, after all. And if there's any way to get a sympathetic public to turn against them, demanding the right to have armed posses of obsessive gun enthusiasts marching around in supermarkets and bars and school corridors sure seems like a good way to do it.

Bottom line: you won. Nobody can take your guns away anymore, and once the Heller/McDonald rulings have been fully adjudicated, you'll have broader rights about the kinds of guns you can own than the kind of car you can drive. Enjoy it.

UPDATE: I originally said Brown had vetoed a bill that allowed open carry. He actually signed a bill that prohibited it. Sorry. The text has been corrected.

Under the proposed Basel III requirements, banks are required to increase their capital levels, and big banks are required to increase their capital levels even more. The Bank for International Settlements estimates the cost of these new regulations:

Adding together these two components, we find that the impact is again quite small, with GDP at the point of peak impact forecast to have fallen 0.34% relative to its baseline level. Roughly 0.04 percentage points are subtracted from annual growth during this period, while lending spreads rise by around 31 basis points.

Well, that doesn't sound so good. Sure, 0.04% isn't much, but it adds up over time. I wonder if there's any benefit to these new rules?

The benefits of the G-SIB framework relate primarily to the reduction in the exposure of the financial system to systemic crises that can have long-lasting effects on the economy. The LEI estimated the benefits of Basel III by multiplying the degree to which it reduces the annual probability of a systemic crisis, by an estimate of the overall cost of a typical crisis in terms of lost output. Drawing on the [Basel Committee Long-term Economic Impact Study's] results, the MAG estimated that raising capital ratios on G-SIBs could produce an annual benefit in the order of 0.5% of GDP, while the Basel III and G-SIB proposals combined contribute an annual benefit of up to 2.5% of GDP — many times the costs of the reforms in terms of temporarily slower annual growth.

Shazam! A cost of 0.04% per year and a benefit of 2.5% per year. This comes via Dan Drezner, who comments that, of course, "it's not terribly surprising that global regulators will say that they're right and the banks are wrong." True. But this is a massive difference. The BIS modeling would have to be off by an enormous amount for these new rules to be anything less than hugely beneficial. Basically, we're paying a tiny amount each year in order to avoid periodic financial crises like 2008 that wipe out gigantic chunks of GDP at a single crack.

Tim Geithner may have gotten some things wrong, but his insistence on the importance of "capital, capital, capital" has been exactly right. Jamie Dimon can bluster all he wants about the new rules being "anti-American," but the details of his complaints are trivial compared to the benefit of raising global capital levels substantially — which probably won't hurt American banks much at all anyway. Geithner is right to stand up to Wall Street's usual howling and charge full steam ahead with the new Basel requirements.