Kevin Drum - February 2014

Compound Inflation Is Probably Higher Than You Think

| Mon Feb. 17, 2014 2:47 PM EST

Atrios wants the older generation to get it through their heads that kids today don't exactly lead cushy lives:

I increasingly do think nominal illusion is part of it, as, say, $50,000 sounds like A LOT OF MONEY for a starting job for the older generation, but in 2014 it isn't that much money.

Yes, yes, yes. If you're my age, that sounds like a pretty good income for someone a few years out of college. But it's nothing special. It's the equivalent of $18,000 in 1980 dollars. If you're part of an even older generation, think of it as the equivalent of about $6,000 in 1960 dollars.

This isn't a poverty-level income or anything. But it's not nearly as much as it sounds like if you're just vaguely comparing it to what you made in your first job. What's more, it's not as if every 20-something college grad makes $50,000 either. Plenty of them make $35,000 or so, and that's the equivalent of $12,000 in 1980 bucks. That's what I made in my first job out of college, and although I was never in danger of starving or anything, I wasn't exactly living like a king in the room I rented out from some friends.

People don't always have a good sense of just how much inflation compounds to. But as a quick rule of thumb, prices have gone up 3x since 1980 and about 10x since 1950. Keep that in mind whenever you're mentally comparing current prices and incomes with those from your early adulthood.

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Obama Trade Deals Are in Trouble, and They Deserve to Be

| Mon Feb. 17, 2014 12:55 PM EST

Dean Baker is no fan of the trade deals currently being negotiated by the Obama administration. They aren't being negotiated for the benefit of consumers, he says. "In reality these deals were being negotiated by corporate interests from day one":

Of course it is possible to craft a trade deal that would promote real economic gains. Doctors in the United States earn salaries that are hugely out of line with those in other wealthy countries. The same is true for other highly paid professions. If a trade deal focused on reducing the barriers that prevent these professionals from providing their services in the United States the gains would be substantial. The savings on doctors alone could be close to $100 billion a year (0.6 percent of GDP).

The agreements could also focus on reducing the value of the dollar, which would make our goods and services more competitive internationally. This would lower our trade deficit and potentially create millions of jobs. And, we could reduce patent and copyright barriers, lowering prices and making markets more competitive.

But these items don't come up at trade negotiations because the folks at the table would lose from these growth enhancing measures. Instead we get silly stories about trade pacts being negotiated by disinterested parties who are only looking out for the good of the country. Come on folks, you've got to do better than this.

It's pretty hard to get excited about either the TPP (Pacific partners) or the TTIP (Atlantic partners). And it looks like it's pretty hard for Congress to get excited too. Ironically, the reason for this is largely due to provisions in these deals that the United States itself has been responsible for foisting on everyone else. If we had stuck to a deal that our trade partners liked better, we'd also have a deal that Congress liked better.

For once, it looks like corporate interests in the United States have outsmarted themselves. Instead of settling for a merely lucrative deal, they demanded outrageously favorable treatment. By doing so, they've pissed off everyone: our trade partners and Congress and a large swath of even the neoliberal community that would normally be sympathetic to treaties like these.

Who knows. Maybe they'll learn a lesson from this.1

1Just kidding.

Forget TV, It's Internet Access at Stake in the Comcast Deal

| Mon Feb. 17, 2014 10:49 AM EST

Paul Krugman says we made a mistake when we stopped worrying about monopolies:

At first, arguments against policing monopoly power pointed to the alleged benefits of mergers in terms of economic efficiency. Later, it became common to assert that the world had changed in ways that made all those old-fashioned concerns about monopoly irrelevant. Aren’t we living in an era of global competition? Doesn’t the creative destruction of new technology constantly tear down old industry giants and create new ones?

The truth, however, is that many goods and especially services aren’t subject to international competition: New Jersey families can’t subscribe to Korean broadband. Meanwhile, creative destruction has been oversold: Microsoft may be an empire in decline, but it’s still enormously profitable thanks to the monopoly position it established decades ago.

....And the same phenomenon may be playing an important role in holding back the economy as a whole. One puzzle about recent U.S. experience has been the disconnect between profits and investment. Profits are at a record high as a share of G.D.P., yet corporations aren’t reinvesting their returns in their businesses. Instead, they’re buying back shares, or accumulating huge piles of cash. This is exactly what you’d expect to see if a lot of those record profits represent monopoly rents.

It’s time, in other words, to go back to worrying about monopoly power, which we should have been doing all along. And the first step on the road back from our grand detour on this issue is obvious: Say no to Comcast.

I can't find anything to disagree with here. Our current situation is mostly a result of the Borkian revolution in antitrust law, which began in the 1970s and has since upended the way courts think about monopolies. Instead of caring about competition per se—or its lack—Bork invented a beguiling tautology in which any company with lots of customers is ipso facto creating a lot of consumer welfare and must therefore be OK. And since successful monopolies always have lots of customers, consumers must be benefiting.

This has been a huge mistake. Competition is what drives creative destruction, and it's valuable for its own sake. We've lost sight of that, and it's time to reverse course.

In the case of Comcast's proposed merger with Time-Warner, it's possible to argue that cable TV is already a monopoly in every geographical area, so it doesn't really matter who the monopolist is. That's not entirely true, but it's true enough to give one pause. More clearly dangerous, though, would be Comcast's newfound monopoly over broadband internet in half the country. There are, theoretically, multiple ways to get broadband internet in your home, but in practice you're limited to cable in about 90 percent of the country. That monopoly has given us some of the world's worst broadband, both painfully slow and painfully expensive.

What's more, as Michael Hiltzik points out, broadband is a direct competitor to cable in the streaming video market, and having a single company with a monopoly position in both is just begging for trouble. Comcast will almost certainly be willing to make promises of net neutrality in order to win approval for its merger with Time-Warner, but those promises will be short-lived. The truth is that if this deal were allowed to go through under any circumstances, it would probably deal a serious blow to our ability to use the internet the way we want, not the way Comcast wants us to. But if it goes through under our actual existing current circumstances, in which enforcement of net neutrality has already been reduced to a husk of its former self, then we can just kiss streaming video goodbye.1

Our real public priority ought to be figuring out a way to insist on broadband competition. There are various ways of doing this, some more free-marketish than others. But that should be the minimum price for approving this merger. A bigger cable TV provider might or might not be dangerous. A bigger monopoly in broadband internet will undeniably be. Competition is the answer to this, the more the better.

1Just to be clear for those new to this, Comcast wants us to use the internet only in ways that don't interfere with the money they make from bringing TV and other video streams into our homes. In other words, their self-interest is directly opposed to net neutrality: they will push at every turn to block, slow down, or otherwise interfere with access to high quality streaming video over the internet. They want you to get that stuff from Comcast via cable TV, not via Netflix or Hulu or BitTorrent or any other provider via high-speed broadband.

Friday Cat Blogging - 14 February 2014

| Fri Feb. 14, 2014 2:49 PM EST

It's been a glorious week in Southern California: 77 degrees, sunny, and mild, just like the promotional posters used to promise. Domino celebrated by hanging out in the backyard and soaking up the sunshine. Then, today, she got to laugh at me as the tables were turned and I had to endure having my picture taken by a crew from our local alt-weekly. Will I look happy or will I look lost in thought? It all depends on which picture they use, so I guess I'll have to wait and be surprised. In any case, it was a remarkably impressive bunch of equipment they brought along. Much better than Domino ever gets.

9 Years on the No-Fly List Because an FBI Agent "Checked the Wrong Box"

| Fri Feb. 14, 2014 1:38 PM EST

Over the years, I've written about a number of people who have been put on the no-fly list and prevented from entering the country for no apparent reason. Or, at any rate, for no reason the government cares to share with its victims. One of them is a Malaysian Ph.D. student named Rahinah Ibrahim, who was detained at San Francisco International Airport in 2005; eventually allowed to fly home; and then put on the no-fly list and never allowed back in the country. Why? As usual, no one is willing to say.

But this week we got a bit of a hint. Over at Glenn Greenwald's new venture, The Intercept, Murtaza Hussain reports on the latest developments:

Last week, a federal judge publicly revealed the government’s explanation for Ibrahim’s long ordeal: an FBI agent had “checked the wrong box,” resulting in her falling under suspicion as a terrorist. Even when the government found and corrected the error years later, they still refused to allow Ibrahim to return to the country or learn on what grounds she had been banned in the first place.

[Eric] Holder, in his April declaration, restated his own new state secrets policy, that “[t]he Department will not defend an invocation of the privilege in order to: (i) conceal violations of the law, inefficiency, or administrative error; (ii) prevent embarrassment to a person, organization, or agency of the United States Government”.

Then he did exactly what he had said he wouldn’t do.

Is there more to this? Maybe. The government, needless to say, isn't talking. But it sure looks as if Ibrahim became a target for investigation; an FBI agent then filled out a form wrong; she was later cleared of any suspicion; but the mistake lived on forever and now no one wants to admit it. Do you feel safer now?

Hot Hand? Well, Maybe a Lukewarm Hand....

| Fri Feb. 14, 2014 12:00 PM EST

Decades ago, the "hot hand" theory of sports was debunked. Massive statistical analysis showed that players in most sports went on streaks about as often as you'd expect by random chance, and when they were on a streak, their odds of making the next shot/goal/hit/etc. were no higher than at any other time. You might feel hot when you sink three buckets in a row, but that's just the endorphin rush of doing well. It doesn't mean you'll make your next basket.

But now, there are all-new mountains of data to crunch, and two teams of researchers have concluded that hot hands really do exist in at least two sports:

Baseball: Brett Green, at the Haas School of Business at the University of California Berkeley, and Jeffrey Zwiebel, at the Stanford University Graduate School of Business...controlled for variables, like the abilities of the batter and the pitcher, the stadium in which the at-bats took place, and even matchups like lefty versus lefty. And their findings, laid out in a working paper, show that a baseball player on a hot streak is batting 15 to 20 points higher than a teammate who is cold.

Basketball: Ezekowitz and his coauthors...with the help of cameras that NBA teams had installed at 15 arenas...could see that players with recent success in shooting were more likely to be taking shots from further away, facing tighter defenses, and throwing up more difficult shots....So the researchers controlled for these variables—and found what players and fans have long believed: The hot hand does exist. At least a little. According to the new research, players enjoying the hot hand are 1.2 to 2.4 percentage points more likely to make the next shot.

Hmmm. So that's about 1-2 percentage points in both cases. And even that tiny effect is visible only after introducing a whole bunch of statistical controls that strike me as being a wee bit subjective. I suspect that if you varied your assessment of how tight the defense was or how difficult the shot was, the effect might go away entirely.

But even if it's all legit, I have to say that 1-2 percentage points is pretty damn close to zero. And frankly, that's still surprising. The truth is that it's always seemed pretty logical to me that players would have hot hands now and again. But they don't. At best, they occasionally have lukewarm hands. All the rest is just chance.

UPDATE: Via Twitter, Wertwhile suggests that this level of improvement is bigger than I'm giving it credit for:

Two percentage points is a 5 or 6% improvement typically and is about a half a standard deviation of improvement.

This is a pretty rough estimate, but it's probably in the right ballpark (so to speak). In absolute terms, 2 percentage points still isn't very much, but in relative terms, half a standard deviation is a fair amount. So maybe "lukewarm" is a little unfair.

However, we still have all those statistical controls to think about. I wouldn't be surprised if these results are pretty sensitive to rather small differences in how these controls are calculated. For now, I think I'd stay on the skeptical side of the hot hands theory.

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Yep, There's a Medical Code for Being Bitten by Shamu

| Fri Feb. 14, 2014 11:27 AM EST

Sarah Kliff reports on the ongoing battle over the ICD-10, a set of medical codes for illnesses and injuries that's far more detailed than the current ICD-9:

There are different numbers for getting struck or bitten by a turkey (W61.42 or W61.43). There are codes for injuries caused by squirrels (W53.21) and getting hit by a motor vehicle while riding an animal (V80.919), spending too much time in a deep-freeze refrigerator (W93.2) and a large toe that has gone unexpectedly missing (Z89.419).

....Hospitals and insurers have fought the new codes, calling them a massive regulatory burden....ICD-10 proponents contend that adding specificity to medical diagnoses will provide a huge boon to the country. It will be easier for public health researchers, for example, to see warning signs of a possible flu pandemic — and easier for insurers to root out fraudulent claims.

“How many times are people going to be bitten by an orca? Probably not very many,” said Lynne Thomas Gordon, chief executive of the American Health Information Management Association. “But what if you’re a researcher trying to find that? You can just press a button and find that information.”

Depending on who you listen to, we are either hopelessly behind the rest of the world in implementing common-sense international standards or else the only country in the world that's holding out against the madness. Read the whole thing and decide for yourself.

Comcast-Time Warner Merger Really Has Nothing to do With You and Me

| Fri Feb. 14, 2014 10:45 AM EST

Via Matt Yglesias, I see that Matthew Klein has finally written a short post that explains what's really behind the Comcast-Time Warner merger:

To understand what the deal is really about, remember that pay-TV distributors are at the mercy of the networks that sell programming. According to Bloomberg Industries analyst Paul Sweeney, about half your cable bill goes to companies such as Viacom Inc. and Walt Disney Co. The networks consistently raise prices about 10 percent a year on average, irrespective of the state of the economy. By contrast, the typical cable bill only goes up by about 5 percent a year. Cable companies have eaten the difference by lowering their margins and cutting costs elsewhere, but there are limits to both processes.

This margin squeeze is why Time Warner Inc. spun off its cable business, why Comcast acquired NBC Universal, and why Internet-based subscription services offered by Netflix Inc. and Amazon.com Inc. have invested in original programming as a defense against the rising cost of licensing content. It also explains why Time Warner Cable had to cave to demands for higher fees from CBS Corp. a few months ago. Merging the two biggest cable operators might give them more bargaining power with the networks, especially if it encourages DIRECTV and Dish Network Corp. to consolidate the satellite business.

In the same way that the health care business can largely be understood as a competition between suppliers (hospitals, pharma, etc.) and consumers (insurance companies), the video entertainment business should largely be understood as a competition between content producers (Disney, Viacom, etc.) and content distributors (Comcast, Verizon, etc.). Ideally, you want competition everywhere. That is, you want enough producers that they compete with each other; enough distributors that they compete with each other; and enough balance between the two that neither producers nor distributors have the whip hand against the other.

So the question we should be asking about the Comcast-Time Warner merger is simple: Do content distributors need more clout? Klein suggests they do: they're at the mercy of rapacious networks who keep raising carriage fees and they don't have the market power to fight back. The merger will help that.

That may be, but I'd like to hear more about this. Networks and cable companies fight constantly, as you know if you've ever seen dueling ads about why your favorite shows will soon be off the air in your area. The networks run ads telling people that if they don't want to miss the next episode of CSI, they better call their cable company and tell them to knock off the gamesmanship. The cable companies run ads insisting that the network is jacking up rates unconscionably and everyone should besiege them with demands that they be more reasonable. Usually this continues until about one minute before the current contract runs out, at which point both sides make a deal. Occasionally it goes longer, and certain shows really are blacked out for a while.

If you've ever had trouble figuring out which side is really at fault in one of these battles of the titans, well, that's the problem. Two mega-corporations are duking it out, and the rest of us are just caught in the middle. From a consumer point of view, part of the problem is that we've all been trained to hate the cable companies who send us outrageous bills every month and love the content producers who make all the shows we love. But don't fall for that: it's just an artifact of which business happens to be customer facing. The truth is that both sides are big, soulless corporations who have no claim on your emotions. That said, I'd normally take Klein's side of this except for one thing: would a bigger Comcast really have more negotiating clout than they do now? I guess that's possible, but they have a helluva lot of clout already. No network can afford to be shut out of Comcast's market for long. So it's not clear to me that a bigger Comcast would really do much for the rest of us.

In any case, that's how to think of this stuff. Practically every big battle you see in the media arena is, one way or another, a battle between gigantic producers on the one hand and gigantic distributors on the other. That's what net neutrality is all about. That's what copyright battles are all about. That's what broadband fights are all about. And that's what this merger is all about. We are all just pawns watching the fireworks.

Why Shouldn't Scotland Have Its Own Currency?

| Thu Feb. 13, 2014 9:51 PM EST

George Osborne, Britain's Chancellor of the Exchequer, said today that if Scotland votes for independence later this year, they can say ta ta to the pound. "If Scotland walks away from the UK, it walks away from the UK pound," he warned. Pro-independence nationalists went ballistic, accusing Osborne of trying to bully Scots into rejecting independence. And of course they're right: that's exactly what he was doing.

Not that it matters. With apologies to all pro-independence Scots, I think there's about a zero percent chance of independence winning the day in September's referendum. As near as I can tell, virtually every national secession vote in the developed world goes the same way: initial support, which then erodes as election day draws near and everyone starts getting a more concrete idea of just how messy it's all likely to be and how it's going to affect them at a purely personal level. It's true that this messiness comes partly from anti-secessionist scare tactics, but that's inevitable. It's just the way this stuff works. It's a lot easier to scare people about possible losses than it is to thrill them about possible gains.

Basically, this means you need to start out with at least 60 percent of the population in favor, since you're almost certain to lose at least 10 percent of them as the campaign unfolds, and Scotland is nowhere near that. It's not even at 50 percent. So independence is doomed.

That's my 5-pence view, anyway, and not worth even that much.1 Still, I'm curious about just why the pro-independence folks have been so dedicated to the idea of keeping the pound in the first place. Scotland's about as big as Denmark, after all, and Denmark does fine with its own currency. What's more, the last few years have vividly demonstrated the downsides of a currency union, especially for the union's junior partners, which Scotland would surely be. So why are they afraid to simply propose that Scotland have its own currency?

Technically, one problem is that Scotland intends to join the EU if it wins independence, and the EU might insist that it can join only if it adopts the euro. That would be the worst of all possible worlds. But I'll bet that would be negotiable. The EU would have strong incentives to let Scotland in even if it kept its own currency, and it wouldn't be hard to invent a cultural exception of some kind based on the fact that Britain has opted out of the euro. That kind of fudge happens all the time.

So what's the real reason? Here are a few guesses:

  • Scots might want independence, but they don't actually trust their own government to manage something as important as a currency.
  • Scots trust their government, but for some reason they're pretty sure that outsiders wouldn't. This would damage their economy.
  • Scotland is heavily reliant on oil revenue right now, which means an independent currency might become too strong and kill the country's export economy. This is the "Dutch disease."
  • The pro-independence folks do want their own currency, but even if everything goes well it would still be a huge short-term conversion headache. So for now, they're just pretending to prefer a currency union.

Or maybe it's something else entirely that I don't know about because I'm not Scottish.2 Anyone have a clue? Why exactly are SNP leaders so dedicated to keeping the British pound?

1Though family legend says I'm descended from Mary Queen of Scots, so there's that.

2Bitcoin, anyone?

Quote of the Day: Mammograms Shouldn't Be Pawns in a Religious War

| Thu Feb. 13, 2014 2:43 PM EST

From Aaron Carroll, responding to the deluge of lame criticisms aimed at a recent study showing that mammograms don't do much to reduce mortality from breast cancer:

I leave you with one final thought. If you’re not going to be swayed at all by a randomized controlled trial of 90,000 women with 25 year follow up, excellent compliance, and damn good methods, it might be time to consider that there’s really no study at all that will make you change your mind.

This really has taken on the nature of a religious war. But eventually we have to face facts. If you have a family history of breast cancer, or some specific markers of vulnerability, or if your doctor thinks you need one, then of course you should get a mammogram. But despite what we've all been taught for the past several decades, the evidence is becoming overwhelming that a blanket recommendation of routine annual mammograms for everyone over the age of 40 just isn't good medicine. This isn't coming from people who are anti-woman or who are just trying to slash budgets. Nor is anyone saying that mammograms are useless. That just isn't what's happening.

What's happening is routine science. And unlike religion, the answers change now and then when you do routine science. That's sometimes uncomfortable and sometimes scary. But that's the story here. Right now, the answers are changing, and we need to change along with them.