• Underwater Mortgages and You


    Homeowners who are underwater on their mortgages are a drain on the economy because high mortgage payments reduce their demand for other goods and services. So how do we fix this? Mike Konczal reviews a couple of proposals to help out distressed homeowners and doesn’t like them:

    These two plans sound like really complicated programs, large-enough in scale to be inefficient. Which is a waste, since we already have this great system for writing down and managing burdensome debt, and it’s this marvelous thing called our bankruptcy laws. Sadly there’s a defect in it that prevents bankruptcy courts from writing down single-family principle residence mortgage….[But] we could easily pass a streamlined, modified version of bankruptcy just for this crisis.

    I think bankruptcy “cramdown” is a good idea, but there’s a problem with it: lots of homeowners who are stuck with mortgages they can’t afford — mortgages that, in aggregate, are a massive drag on the economy — nonetheless aren’t in such desperate straits that they can declare bankruptcy. In addition, there are others who could, but don’t want to. Bankruptcy is a big deal, after all.

    So I’m a little more sympathetic toward those broader plans than Mike is, because they might help a broader swath of homeowners and get the economy moving more quickly. Unfortunately, as much as people hate bailing out banks, they hate bailing out their profligate neighbors even more. I think we can safely expect nothing to happen on this front, and that means the economy will continue to underperform and unemployment will stay high. Thanks, tea partiers!

  • The Great Stagnation


    So far my only comment about Tyler Cowen’s e-booklet “The Great Stagnation” has been a whine about the Kindle format it’s offered in. I promised a more substantive review for Monday, but now that Monday is here I’m almost reluctant to weigh in because TGS has gotten so much attention already. At this point, I’m not sure I have anything original to say about it.

    But perhaps I do. The primary argument of TGS is that the United States has been growing strongly for the past two centuries by relying on lots of low-hanging fruit, but now the days of easy growth are over. In particular, Tyler identifies three sources of easy growth that are no longer open to us:

    • Land. The United States used to have lots of open land and now we don’t anymore. I find this argument unpersuasive. Europe ran out of land a long time ago and its economic growth over the past two centuries has been great. Conversely, Brazil has lots of open land, but until recently its growth was poor. So I’m just not convinced that land is a big issue here.
    • Education. Starting a century ago we dramatically increased the number of kids who went to high school. More importantly — much more importantly, I’d say — after World War II we dramatically increased the number of kids who graduated from college. But you can only do that once. We can still make incremental improvements on this score, but we can’t double or triple the number of college grads anymore. That avenue of growth is closed to us.
    • Technology. Tyler argues that technological growth was high between 1900-1950, but it’s slowed since then. We spent several decades exploiting all the new inventions of the early 20th century, but a few decades ago we ran out of steam and we haven’t invented enough truly fundamental new stuff since then to keep growth going. Longtime readers know that I basically agree with this, so I don’t need much convincing on this score.

    But there’s a tension here that Tyler doesn’t address. Technology grew like gangbusters in the first half of the 20th century, but it wasn’t until the second half that education took off. So apparently it’s not higher education that’s really responsible for dramatic technological growth. But if that’s the case, who cares about education?

    The answer, I think, is that having lots of college grads doesn’t really help push technological boundaries forward. What it does is produce a population that can effectively manage and direct large organizations that depend on advanced technology. And that helps produce economic growth nearly as much as fundamental new inventions do.

    So here’s what I think Tyler missed: it’s true that we’ve already made our big improvements in access to education, and we can’t do that again. But even if the number of college grads stays about the same as it is now, and even if the quality of their education stays about the same as it is now, the effectiveness of their management skills is multiplied tremendously by the computerization of the workplace. The human beings who are managing our country might be about the same as the ones who managed it 30 years ago, but they’re managing it with steadily improving software and networking. They’ll keep doing that for a long time, and that will keep GDP growing in the same way that better and better exploitation of electricity did during most of the 20th century.

    In other words, computerization isn’t just about the internet, and it’s not just about whether Facebook generates a lot of utility without generating a lot of traditional GDP. That’s the sexy stuff, but for the next 30 years it’s continuous improvements in the computerization of industry and the computerization of management that will be the big GDP driver. Providing well-educated humans with better computers is every bit as important as simply churning out more well-educated humans.

    (And after that? I’m a true believer in artificial intelligence, and I figure that 30 or 40 years from now computers are literally going to put humans out of business. They’ll dig ditches better than us, they’ll blog better than us, and they’ll make better CEOs than us. This is going to cause massive dislocations and huge social problems while it’s happening, but eventually it will produce a world in which today’s GDP looks like a tinker toy.)

    Tyler makes a bunch of other arguments in “The Great Stagnation” too, some more persuasive than others. Like some other critics, I’m not sure why he uses median wage growth as a proxy for economic growth. It’s important, but it’s just not the same thing. Besides, median wage growth in the United States slowed very suddenly in 1973, and it’s really not plausible that our supply of low hanging fruit just suddenly dropped by half over the space of a few years. I also had a lot of problems with his arguments about whether GDP generated by government, education, and healthcare is as “real” as other GDP. For example, he suggests that as government grows, its consumption is less efficient, but that’s as true of the private sector as it is of the public sector. A dollar of GDP spent on an apple is surely more “real” than a dollar spent on a pet rock, but there’s simply no way to judge that. So we just call a dollar a dollar, and figure that people are able to decide for themselves whether they’re getting the same utility from one dollar as they do from the next.

    The healthcare front is harder to judge. I agree with Tyler that we waste a lot of money on healthcare, but at the same time, I think a lot of people seriously underrate the value of modern improvements in healthcare. It’s not just vaccines, antibiotics, sterilization and anesthesia. Hip replacements really, truly improve your life quality, far more than a better car does. Ditto for antidepressants, blood pressure meds, cancer treatments, arthritis medication, and much more. The fact that we waste lots of money on useless end-of-life treatments doesn’t make this other stuff any less real.

    To summarize, then: I agree that the pace of fundamental technological improvements has slowed, and I agree with Tyler’s basic point that this is likely to usher in an era of slower economic growth in advanced countries. At the same time, improvements in managerial and organizational efficiency thanks to computerization shouldn’t be underestimated. Neither should the fact that other countries still have quantum leaps in education to make, and that’s going to help us, not just the countries trying to catch up to us. After all, an invention is an invention, no matter where it comes from. And finally, try to keep an even keel about healthcare. It’s easy to point out its inefficiencies, but it’s also easy to miss its advances if they happen to be in areas that don’t affect you personally.

  • Big Money


    The latest news in the banking world:

    Fraud and mismanagement at Afghanistan’s largest bank have resulted in potential losses of as much as $900 million — three times previous estimates — heightening concerns that the bank could collapse and trigger a broad financial panic in Afghanistan, according to American, European and Afghan officials.

    I don’t have any insights to offer about this, but I’ll offer up some simple math instead. The GDP of Afghanistan is about $15 billion. That means that this single bank is reporting losses equal to about 6% of GDP. That would be the equivalent of, say, Chase or Bank of America reporting a loss of around $1 trillion or so. That’s a big loss.

  • Wikipedia’s Gender Problem


    The New York Times reports today that Wikipedia contributors are overwhelmingly men:

    About a year ago, the Wikimedia Foundation, the organization that runs Wikipedia, collaborated on a study of Wikipedia’s contributor base and discovered that it was barely 13 percent women….With so many subjects represented — most everything has an article on Wikipedia — the gender disparity often shows up in terms of emphasis. A topic generally restricted to teenage girls, like friendship bracelets, can seem short at four paragraphs when compared with lengthy articles on something boys might favor, like, toy soldiers or baseball cards, whose voluminous entry includes a detailed chronological history of the subject.

    ….Is a category with five Mexican feminist writers impressive, or embarrassing when compared with the 45 articles on characters in “The Simpsons”?

    ….Jane Margolis, co-author of a book on sexism in computer science, “Unlocking the Clubhouse,” argues that Wikipedia is experiencing the same problems of the offline world, where women are less willing to assert their opinions in public. “In almost every space, who are the authorities, the politicians, writers for op-ed pages?” said Ms. Margolis, a senior researcher at the Institute for Democracy, Education and Access at the University of California, Los Angeles.

    This is just guesswork on my part, but I think this is a different phenomenon than gender disparity in op-ed writing. For starters, you need to compare apples to apples, and wondering why Mexican feminist writers are underrepresented on Wikipedia compared to The Simpsons is silly. It’s because The Simpsons has an audience in the millions while Mexican feminist literature has an audience in the thousands. You don’t really need to dig much deeper. There are several comparisons like that in the Times piece, and they mask the problem more than they illuminate it.

    Still, even accounting for that, the gender disparity is real. But I suspect the reason has less to do with women having trouble asserting their opinions and more to do with the prevalence of obsessive, Aspergers-ish behavior among men. After all, why would anyone spend endless hours researching, writing and editing a Wikipedia post for free about either The Simpsons or Mexican feminist writers? I think that “having an opinion on the subject” is far too pale a description of why people do or don’t do this. You need to be obsessed. You need to really care about the minutia of the subject and whether it’s presented in exactly the right way. And you need to care about this in a forum with no professional prestige. You’re really, truly doing it just for the sake of the thing itself.

    I’ve long been convinced that this tendency toward obsession is one of the key differences between men and women. I don’t know what causes it. I don’t know if it helped primitive men kill more mastodons during the late Pleistocene. But it does seem to be real, and it doesn’t seem to be something that’s either culturally encouraged or discouraged in children of either gender. I just don’t know. But I’ll bet that an obsessive outlook on life is something that produces a lot of Wikipedia articles.

  • Covering Egypt


    James Joyner — joining a cast of millions — complains that cable news coverage of Egypt has been terrible. If you want to know what’s going on, you have to watch al-Jazeera. Then this:

    It’s not exactly that private news channels can’t do a fantastic job. ABC, NBC, and CBS did so within my memory. And CNN did so even more recently. But they did so under quasi-monopoly conditions….But, with the proliferation of cable, Americans were increasingly choosing to watch something other than news: game shows, re-runs, SportsCenter, or whathaveyou.

    With the incentive gone, news programming began to be viewed as an expense, and the networks largely did away with foreign coverage. Not only is it expensive to produce, but Americans generally don’t care about it unless there’s a crisis. But, since by definition we don’t know where crises will break out ahead of time, it’s cheaper to simply parachute in to cover them. And hard news began to soften, including more human interest stories and politics-as-sports coverage.

    I’ve watched no news coverage of any kind for the past four days and therefore have no idea what network coverage has been like. But I think this deserves a bit of perspective that’s independent of what these guys are doing. So here it is: what we’re seeing is not the superiority of al-Jazeera in its approach to covering the news. What we’re seeing is the fact that we’re in the middle of an uprising in the Middle East and that happens to be something that al-Jazeera is very, very well situated to cover. Conversely, if I wanted news about the Super Bowl, I’d turn to ESPN. For news about the repeal of healthcare reform, CNN would probably be pretty good. For news about Jerry Brown’s upcoming State of the State address in California, one of my local news stations would be best.

    There’s no question that American cable nets — along with virtually all of the rest of the American media — suck very badly at covering international news. I’d love to blame them for this state of affairs, but I think that’s kind of unfair. The problem is that Americans have voted with their pocketbooks and announced in a loud and sustained voice that they don’t really care about international news unless it happens to be either (a) a U.S. war or (b) some kind of disaster story like Haiti or the Chilean miners. Given that, it’s hardly reasonable to expect CNN or Fox to run a money-hemorrhaging charity operation for those few of us who care about this stuff.

    And I’ll add one more thing: maybe, just maybe, up-to-the-nanosecond coverage isn’t really all that important? If you’re transfixed by this stuff, that’s fine. No one begrudges it. But really, is there any compelling reason why a TV network should be broadcasting continuous coverage of something like this? If you don’t find out for three or four hours that Hosni Mubarak replaced his cabinet, does it matter? And does following events on Twitter, where the signal-to-noise ratio is about 1%, really improve your understanding of what’s happening?

    I doubt it. But that still doesn’t excuse the atrocious quality of analysis on the cable nets. Since I haven’t watched it — except for a few minutes of Fox one morning in which they were obsessed with the Muslim Brotherhood — I can’t say anything about it from personal experience. But I trust James when he says it’s awful, and there’s not much excuse for that. Giving Egypt a couple of hours a day instead of 24/7 treatment seems fine to me, but at the least, those couple of hours ought to be good stuff.

  • Egypt in Real Time


    I’ve been away all weekend or else I would have mentioned this earlier, but Nick Baumann has been following the events in Egypt for the past several days and posting a continuous stream of updates and links to some of the best posts on the subject. You can see it here. Just start at the top and scroll down, or else go straight to the bottom to get the latest updates.

  • Friday Cat Blogging – 28 January 2011


    On the left, Inkblot is giving himself a good chin smooch after spending a few minutes gazing in rapt concentration at a nearby hummingbird. He had obviously been hoping to sprout wings and fly over for a lunchtime snack, but when that didn’t happen he decided to pretend nothing had happened and curl back up in the sunshine. (Current temp here: 71 degrees.) On the right, Domino has performed her post-dinner leap into the bookshelf. I have no idea why, but both cats go crazy for a few minutes after they get fed, and this is where Domino frequently ends up. A few minutes later, though, she was snoozing away.

  • Downgrading America


    Karl Smith on the possibility that ratings agencies will downgrade U.S. debt from its current AAA rating:

    I am [] willing to take 50 to 1 odds that President Obama doesn’t understand what a downgrading of US Treasuries would mean. He could probably trot out some line about investor confidence but what this actually meant and the significance or more to the point, lack thereof, he would not be able to explain cogently.

    I can’t speak for Obama, but I have a feeling that the significance would be: zero. Granted, there’s symbolic importance to something like this, and on a substantive level there are certain funds that are legally prohibited from holding non-AAA debt. So fine: maybe not quite zero.

    But U.S. debt is simply too big, too public, and too widely followed for ratings agencies to have much influence over it. Everyone knows what the problems with the American economy are, and no one thinks that the folks at Moody’s or S&P know any more about it than anyone else. They just don’t have any special expertise to offer here. A downgrade might provide an opportunity for some short-term arbitrage, but beyond that it’s not clear if it would have any effect at all. It’s the market that determines the price of U.S. debt, not the ratings agencies.

    (The president couldn’t actually say anything this cavalier, of course. He’d have to trot out some line about investor confidence and the long-term strength of the U.S. economy blah blah blah. Still, I think zero is more or less the actual correct answer.)

  • Is Corporate Tax Reform Still Possible?


    The New York Times has a pretty good primer on corporate tax reform today, and it includes the chart on the right showing the different rates that various industries pay thanks to the tax breaks, subsidies, and loopholes that they’ve lobbied for over the years. Jon Chait comments:

    Guess what? The interest of the companies benefiting from loopholes outweighs the interest of the companies that would like lower rates. If nothing else, loss aversion will drive the loophole beneficiaries to lobby harder than non-beneficiaries. My prediction: nothing happens.

    He’s probably right, and this is a profound demonstration of just how far right the Republican Party has moved over the past couple of decades and how much more power the business community has amassed. After all, as Bruce Bartlett reminds us today, the idea of lowering rates but eliminating loopholes in the corporate tax code managed to get bipartisan support as recently as 25 years ago during the administration of conservative hero Ronald Reagan. Today, though, it’s a nonstarter:

    Republicans claim they are for it, but they steadfastly refuse to name a single existing tax provision that is worth getting rid of; they are only for tax rate cuts and that is the sum total of their contribution to the tax reform debate….The other factor in Republicans’ thinking is just cynical politics….Grover Norquist, president of Americans for Tax Reform and the man who, more than anyone else, lays down the Republican line on all tax issues, told me this when I asked him about coming up with offsets to pay for tax reform: “I recommend taking the corporate rate to 25 percent. The Dems can suggest tax hikes if they believe they need to ‘make up’ revenue. That is a bipartisan division of labor.”

    The political trap is obvious. Any actual reform that would increase revenue will be relentlessly attacked by Republicans as a tax increase and they will quickly send out fundraising letters to whatever group or industry is affected, requesting campaign donations to prevent the Democrats from raising their taxes. No mention will be made by Republicans of the idea that the reforms would be coupled with tax rate reductions in a revenue-neutral manner that neither raises nor lowers net tax revenue in the aggregate. Unfortunately, this strategy will doom any hope of tax reform. No Democrat is going to put forward any revenue-raisers under these circumstances.

    I’ve always been cautious about taking any lessons from the passage of corporate tax reform in 1986. It was, in some ways, sui generis, a sort of miraculous bipartisan stand against corporate interests that’s just very, very rare. And yet: it happened. Twenty-five years ago conservative Republicans were willing to team up with Democrats to do something that was good for the country, and neither side backed down because of either corporate pressure or an unwillingness to allow the other side a victory. It was, in a way, an existence proof that this kind of thing was once possible.

    In theory, there’s no reason it couldn’t happen again. Democrats are probably willing to go along, and base broadening is, officially anyway, something that conservatives favor. But in real life, Republicans are less willing to work across the aisle these days and Democrats are far more responsive to corporate pressure than they were in the 80s — which is, I suppose, just a longwinded way of saying that American politics is broken and big business reigns supreme. But it’s a very concrete way of saying it, and it lends itself to an almost quantitative assessment. The fate of corporate tax reform is sort of a bellwether for the state of our political system, and I suspect our system is so broken that it will die without even getting a serious hearing.

  • The GOP and the Tea Party


    Kathleen Hennessey of the LA Times reports that with the election safely out of the way, Republican senators are none too eager to associate themselves with the tea party movement:

    The first meeting of the Senate Tea Party Caucus on Thursday attracted just four senators — out of 47 GOP members — willing to describe themselves as members. The event was as notable for who wasn’t there as who was. Sen. Marco Rubio (R-Fla.), once a tea party favorite, has for now declined to join the caucus, whose first meeting was organized by Sen. Rand Paul (R-Ky.). Sen. Ron Johnson, a Wisconsin Republican whose campaign sprung from the small-government movement, has said he’s unsure if he’ll join. Sen. Pat Toomey (R-Pa.) showed up to address the group of activists, but then hustled out of the room, ignoring reporters’ questions about whether he was in or out.

    Hennessey notes that there are institutional reasons that might explain some of this, but I suspect the real reason is simpler: it’s one thing to be a tea partier in a congressional district, which might be small and ideologically extreme. But it’s a lot harder to be one in a statewide office, where you have to appeal to a broader range of the electorate. As lots of analysts have noted, congressional districts have become more polarized over the past couple of decades — partly due to gerrymandering, partly due to geography, and partly due to people actively segregating themselves — and this provides fertile ground for hardcore activists on both sides. But it just doesn’t scale up. Sarah Palin will never be president. Hell, Joe Miller couldn’t even win a Senate seat with her backing. The tea party is having an impact, but it’s mostly at the fringes and the leadership of the GOP will, eventually, swallow it up and spit it out. As I put it earlier this year:

    As with the earlier incarnations [of right-wing extremism], its core identity will slowly fade away and become grist for CNN retrospectives, while its broader identity becomes subsumed by a Republican Party that’s been headed down the path of ever less-tolerant conservatism for decades. In that sense, the tea party movement is merely an unusually flamboyant symptom of an illness that’s been breeding for a long time.

    That’s already happening, I think.

  • Egypt


    This is probably obvious to everyone already, but just for the record: I don’t have anything personally to add about events in Egypt, and I assume that you can follow the basic news from mainstream sources just fine without links from me. So I won’t be posting much about this, even though it’s plainly important stuff. If I run across some especially interesting commentary somewhere, I’ll post about it, but that’s about it.

  • My Problem With the Kindle


    Last night I finally caved in and downloaded Tyler Cowen’s e-booklet, “The Great Stagnation.” I’ll have a substantive review on Monday, but for now I’d like to whine a bit about the business model behind the thing.

    Here it is: if you want to read TGS, you pay Amazon $4 and download it to your Kindle. The problem with this is that the Kindle sucks at rendering tables and charts. The screen cap on the right, for example, shows a chart from Tyler’s book. As Kindle charts go, it’s actually not too bad. But what’s on the X-axis? It appears to start with 1455, and obviously the numbers go up. I get the idea. But the actual details are completely lost. Later in the book there’s another table so badly rendered that I can’t make it out at all.

    In the case of “The Great Stagnation,” this isn’t too big a deal. I know what the chart above is getting at, and the table at the end is one I’ve seen before. But other nonfiction books don’t fare so well. Gregory Clark’s Farewell to Alms, for example, relies heavily on lots and lots of fairly complex charts and tables, and they’re rendered so badly (unreadable graphs, table columns that don’t line up, etc.) and placed so haphazardly that they made the book almost impossible to absorb properly. To this day, I’m not sure if my disagreements with his thesis are real, or mere artifacts of the fact that the e-version of the book was really hard to follow. In any case, that was the book that made me give up on the Kindle entirely for nonfiction. Until now.

    I’d happily buy an iPad, or maybe even a bigger Kindle, if I thought that graphical elements would be properly rendered with a little more screen real estate. But I have a feeling they aren’t, and I don’t feel like examining nonfiction books closely before I buy them to see if they rely on graphical elements and should be purchased in paper form or are primarily text and can be safely read on the Kindle.

    Besides, a pretty good business model already exists for pieces like Tyler’s: sell it to a magazine. It’s a little long, maybe, but I’ll bet it could have been sweated down into a long magazine piece, especially since chapters 3 and 4 could profitably have been reduced to a few hundred words each. The advantages for Tyler would have been (a) great graphics designed by a pro and (b) a guaranteed wide audience. The advantages for me would have been (a) excellent readability and (b) I probably could have read it for free, increasing my consumer surplus by $4. This would have been a pareto-optimal state for all of us.

    Anybody else have the same problem with the Kindle? Is the bigger version better? How about the iPad? I don’t care about fiction. That already works fine. I just care about whether complex nonfiction renders nicely. What say ye, commentariat?

    UPDATE: In case you’re wondering how I got a screen cap of a Kindle book, I didn’t. I just put the Kindle on my flatbed scanner and scanned the whole thing. Photoshop did the rest. I’m not really sure if there’s a better way of doing it.

  • The Power of Fox


    Conor Friedersdorf suggests that we give Fox News too much credit:

    Yes, among a certain demographic, Fox News is a huge ratings success. So is Rush Limbaugh. But where is the evidence that this rating success has translated into electoral victories or a friendlier policy environment for conservatives? There is none.

    This is true as far as it goes. The actual number of people who watch Fox is relatively small. But I think it misses the bigger picture.

    First, Fox has agenda setting power. When they — along with Rush/Drudge/etc. — push a topic hard, it goes mainstream. And that affects the political atmosphere dramatically. Last summer I’m sure Democrats would have preferred that we talk about the glories of healthcare reform or the need to create jobs. Instead we were talking about the New Black Panthers, the Ground Zero mosque, anchor babies, and other conservative hot buttons. You can largely thank Fox for that.

    Second, Fox’s main influence, I’d say, isn’t to win elections for Republicans or to influence who wins Republican primaries. It’s to push the entire Republican Party further to the right. Fox certainly hasn’t done this by itself, but there’s really not much doubt that it’s had a huge influence on this project over the past decade of its existence.

    My guess is that Fox has very modest persuasive power. It has a bit just by virtue of its agenda setting power, but that’s about it. After all, its viewers are already conservative. But that said, the power to push Republicans to the right is a huge one. Not only does this act indirectly to push the entire country to the right,  but it also makes it nearly impossible for liberals to pass compromise legislation. That’s why the next dozen years or so are going to be grim ones for liberals. We’re not going to get 60 votes in the Senate again for a long time, and in the era of Fox News Republicans just flatly won’t work together on anything that isn’t a hard right priority. I figure that it’s 2024 at the earliest before liberals will get anything big done again, and Fox can take a lot of credit for that. Looking narrowly at their viewership misses their real influence.

    UPDATE: Here’s a paper suggesting the the power of Fox is actually more direct than either Conor or I gave it credit for. The authors measured voting behavior between 1996 and 2000 in towns where Fox News was introduced vs. towns where it wasn’t introduced:

    We ?nd a signi?cant effect of the introduction of Fox News on the vote share in Presidential elections between 1996 and 2000. Republicans gained 0.4 to 0.7 percentage points in the towns that broadcast Fox News. Fox News also affected voter turnout and the Republican vote share in the Senate. Our estimates imply that Fox News convinced 3 to 28 percent of its viewers to vote Republican, depending on the audience measure. The Fox News effect could be a temporary learning effect for rational voters, or a permanent effect for nonrational voters subject to persuasion.

    Thanks to Philip Klinkner for the pointer.

  • Obama’s Sputnik Moment

    <a href="http://www.nasaimages.org/luna/servlet/detail/nasaNAS~20~20~120295~226994:Sputnik-1" target="_blank">Nasa Images</a>


    On Tuesday President Obama said we were entering “our generation’s Sputnik moment”:

    Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik, we had no idea how we would beat them to the moon. The science wasn’t even there yet. NASA didn’t exist. But after investing in better research and education, we didn’t just surpass the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs.

    This is only half right. It’s true that after the launch of Sputnik science and math education became an American obsession, but that’s not what got us to the moon. The scientists and engineers who eventually built the Apollo rockets weren’t teenagers, after all. They were grown men and women who’d been educated in the 40s and 50s. The post-Sputnik push for better technical education may or may not have paid off—remember the New Math?—but if it did, it paid off two decades later in the personal computer revolution of the 80s.

    So how did we unleash a “wave of innovation that created new industries and millions of new jobs”? Obama only touched on that in his speech, but part the answer is: big government. As Fred Kaplan reminds us, when Texas Instruments introduced a newfangled invention called the microchip in 1959, nobody in the private sector had any use for it:

    However, these tiny chips would be needed to power the guidance systems in the Minuteman’s nose cone—and in the coming Apollo program’s space capsule. It was the Pentagon and NASA that bought the first microchips. The demand allowed for economies of scale, driving down costs enough so that private companies started building products that relied on chips. This created further economies of scale. And so came the inventions of the pocket calculator, smaller and faster computers, and, decades later, just about everything that we use in daily life.

    The microchip would have found a market eventually even without NASA, but it might have taken years longer. And this same story goes beyond just integrated circuits. The first computer, ENIAC, was originally designed for the United States Army’s Ballistic Research Laboratory. The internet was originally funded by the Pentagon’s Advanced Research Projects Agency—which had been created in the wake of Sputnik—and was based on packet switching technology invented by a professor at a public university. And today, rocket technology itself, originally designed and funded by the federal government, is starting to become a thriving private business as well.

    It was the private sector that turned these inventions into multi-billion dollar businesses, but it was government that provided either the basic research, the initial market, or both. Acknowledging this isn’t an endorsement of socialism or tyranny or government run amok. It’s an acknowledgment of the reality of progress in the modern era. Obama was right to focus our attention on education, technology, and infrastructure in his State of the Union address, because that’s the seed corn that will provide long-term productivity growth for America and the world. But with apologies to Bill Clinton, if we’re really serious about out-innovating, out-educating, and out-building, this means accepting that the era of big government is far from over. When it comes to basic R&D and the infrastructure to exploit it, it’s only just begun.

    Front page image credit: NASA Images.

  • The Spudnut Moment


    My sister thinks I should join the movement to declare February a Palin-free month. The logic behind this is unassailable. And yet….it would prevent me from sharing stuff like this:

    The first segment is some sort of painfully rehearsed word salad about Obama’s mention of a Sputnik moment in his State of the Union address, and it ends with Palin suggesting that what America really needs is a “Spudnut moment,” referring to a small business in Richland, Washington. Tommy Christopher tries to make sense of it all:

    Palin never really explains how this is supposed to work, but I think the equation goes something like this: “Sputnik moment” + “Something that sounds like Sputnik but isn’t”=WIN!

    For what it’s worth, Greta Van Susteren’s blank look at the end of Palin’s harangue is sort of priceless. Still, it leaves the question open: are we better off taking a month’s vacation from this? Or is the entertainment value just too high? Decisions, decisions…..

  • Filibuster Reform Officially Dead


    It’s now official: filibuster reform is dead. Ezra Klein explains what we get instead:

    There is some good stuff in the agreement Reid and McConnell struck. The Senate will vote on eliminating secret holds, ending the timewaster of having the clerk read legislation out on the Senate floor, and cutting the number of nominees who require Senate confirmation by a third (which would free about 400 positions from the process). Reid and McConnell have also agreed, in principle, to avoid filibustering the motion to debate and to grant the other side more opportunities to amend legislation.

    All that is laudable, particularly the effort to lower the number of nominees the Senate needs to confirm. But this process kicked off because Democrats were furious at Republican abuse of the filibuster. It’s ended with Democrats and Republicans agreeing that the filibuster is here to stay. And the reason is both simple and depressing: Democrats want to be able to use the filibuster, too. Both parties are more committed to being able to obstruct than they are to being able to govern. This is why people call the Senate dysfunctional.

    Full-blown elimination of the filibuster was never in the cards, but it’s still pretty disappointing that the whole thing petered out this badly. As always, fear of what the other side could do with majority rule outweighs the prospect of what your own side could do with it. Unfortunately, this gives us a system in which neither party is truly responsible for making government function, and the only compromises available are ones that contain enough bribes to keep both parties happy. This is not how we’re going to win the future.

  • The Problem With Europe


    Ryan Avent notes today that the relatively tight monetary stance of the European Central Bank has been nearly ideal for Germany. But that’s a problem:

    The funny thing here is that the ECB is not Germany’s central bank; it’s the central bank for the euro area. Growth in Germany has hugely outstripped that of other euro zone economies over the past year, especially those on the debt-addled European periphery. Ireland’s nominal GDP growth rate was sharply negative in GDP, which isn’t the easiest environment in which to try to pay down debts. A monetary policy that’s pretty good for Germany is terrible for most of the euro zone. And if the ECB tightens policy because of rising headline inflation, then it will be contracting while austerity programmes around the continent kick into high gear, again hitting peripheral countries the hardest. It’s almost as if the ECB wants to make sure that struggling countries can’t meet their debt reduction goals.

    ….Food and energy issues aside, euro zone inflation overall is unlikely to get out of hand thanks to falling price pressures around the periphery. But in Germany, faster growth is finally turning into some inflation. So what the ECB should do, both in order to facilitate recovery across the entire euro zone and to speed internal euro zone rebalancing, is let German inflation run a bit. But all indications are that the ECB sets policy based on conditions in Germany. And so premature and costly tightening looks likely.

    Obvously this is bad for lots of Europeans outside Germany, but just to be selfish for a moment, it’s probably also bad for us. It’s already the case that growth in the world’s developed countries is too sluggish while growth in developing countries is heating up dangerously. This is the “two track” recovery that people talk about, and while some of it is probably inevitable, the last thing we should be doing is making it worse. The euro-area economy, like ours, is big enough that sluggish growth there eventually affects the entire world, including us. Right now, Europe simply has too many growth problems to remain a slave to Weimar-era phobias about inflation creeping above 2%.

  • Three Questions About Those Middle East Revolts


    Dan Drezner has three questions about the revolts currently sweeping the Middle East:

    1) How much logic will be contorted in an effort to argue that the 2003 invasion of Iraq was the trigger? I’m thinking a lot.

    2) Which neoconservative impulse will win out — the embrace of democratic longing, or the fear of Islamic movements taking power?

    3) A year from now, will Tunisia actually be a democracy? The “Jasmine Revolution” portion of this story is easy — it’s the grubby parts of institution-building and power-sharing that muck things up.

    Let’s see. On #1, I’d say that calling it pretzel bending will end up being an insult to pretzels. #2 is easy: neocons will embrace the democracy part and take credit for it and denounce the Islamist part and blame Obama for it. On #3, the answer is no.

    Any other questions?

  • The Virtue of Unions


    Mike Konczal argues that strong labor unions and full employment are better for the economy than high taxes on rich people to fund “a kind of pity-charity liberal capitalism.” Matt Yglesias agrees:

    I think that’s correct, but that “full employment” is doing almost all the work here even while Konczal’s emotional emphasis seems to be on bargaining power. After all, if you have strong labor unions and a government that doesn’t fight for full employment, then what happens is the unions use their bargaining power to cut insider/outsider deals at the expense of the unemployed. One of the great virtues of American unions in their heyday is that they used their political muscle to push the government to fight for full employment, which was excellent and it’s a political voice we’re desperately missing today. But that’s not to say that the unions themselves are a viable substitute for full employment. A market economy is either going to operate near full employment, or else people will only share in its benefits thanks to handouts. That’s true for any given set of labor market institutions.

    Sure, full employment is doing most of the work here. But that’s the point of a strong labor movement: it forces the government to fight for full employment. It fights for lots of other stuff too, and that’s the whole virtue of organized labor. It’s true that they also produce a modest wage premium for their own members, but if that’s all they did then I wouldn’t care much about them and neither would most other liberals.

    Unions have lots of pathologies: they can get entranced by implementing insane work rules, they can get co-opted by other political actors, and they can end up fighting progress on social issues, just to name a few. But they fight for economic egalitarianism, and they’re the only institution in history that’s ever done that successfully on a sustained basis. That’s what makes them so indispensable to liberalism and that’s what makes them the sworn enemies of conservatism.

    You just can’t pull labor and full employment apart. It’s not a matter of emphasis. A country without a strong labor movement is almost inevitably one in which economic and political power is overwhelmingly on the side of business interests and rich people, and that means you’re not going to have sustained full employment because that’s not what business interests and rich people want. It’s all about power, baby, power.

  • The Immigration Show


    Even though deportations of illegal immigrants are up under the Obama administration, the LA Times reports that Republicans want to return to the high-profile workplace raids of the Bush era. But why return to a less efficient program? Let’s take a look:

    Targeting employers is part of an effort by the administration to thwart illegal immigration by reducing the demand for illegal jobs, which draws hundreds of thousands across the border each year to look for work. “There is a laser-like focus on holding employers accountable. In the final analysis, they are the ones supplying the jobs. It is the greatest use of the resources,” [Kumar] Kibble said.

    Under Obama, cases against employers are up sharply: Immigration and Customs Enforcement quadrupled the number of employer audits after Obama took office, increasing the number of inspections and arrests against those who knowingly hire illegal immigrants. Businesses were fined $6.9 million in fiscal 2010, up from $675,000 in 2008.

    That explains it. The Obama approach might be more effective, but it actually targets the business community, and we can’t have that, can we? Better to do something showy but ineffective instead.