A few days ago Brad DeLong tagged a piece by David Warsh that promises to be a preface of sorts to a 14-part series about some new research into the nature of finance and the origins of the Great Recession. It actually looks pretty interesting, but I confess I'm a little unclear about one of its central points.

As we all know, one of the problems the Great Recession uncovered was the brave new world of rocket science derivatives, which were so complex that no one truly knew what they represented. Warsh suggests that this is no accident:

Stock markets existed to elicit information for the purpose of efficiently allocating risk. Money markets thrived on suppressing information in order to preserve the usefulness of bank money used in transactions and as a store of value. Price discovery was the universal rule in one realm; an attitude of “no questions asked” in the other.

....This new view of the role of opacity in banking and debt is truly something new under the sun. One of the oldest forms of derision in finance involves dismissing as clueless those who don’t know the difference between a stock and a bond. Stocks are equity, a share of ownership. Their value fluctuates and may drop to zero, while bonds or bank deposits are a form of debt, an IOU, a promise to repay a fixed amount.

That economists themselves had, until now, missed the more fundamental difference — stocks are designed to be transparent, bonds seek to be opaque — is humbling, or at least it should be. But the awareness of that difference is also downright exciting to those who do economics for a living, especially the young. Sufficiently surprising is this reversal of the dogma of price discovery that those who have been trained by graduate schools in economics and finance sometimes experience the shift in Copernican terms: a familiar world turned upside down.

I can't do justice to the whole idea in an excerpt, but this gives you a taste of Warsh's thesis. But it confuses me. Certainly he's right that mortgage-backed securities of the aughts were astonishingly opaque, but why does that lead us to believe that bonds, in general, "seek to be opaque"? For most of the 20th century and before, bonds were considerably simpler than the derivatives of the 21st century. The value of a corporate bond depended on the likelihood of bond payments being made, which in turn depended on the profitability and overall growth prospects of the firm. The value of a company's stock also depended on the profitability and overall growth prospects of the firm. If you knew one, you knew the other. Bonds, in general, were no more opaque than stocks. And none of this had any relation to bank money, did it?

Maybe this will all be explained later. If Warsh is arguing that the transparency of the debt and equity markets have changed over the past decade or so, that's one thing. But if he's arguing that they've always been fundamentally different, then I have some questions. I hope he answers them over the next 14 weeks.

The federal government announced today that Obamacare premiums are set to rise 22 percent next year. Charles Gaba estimates that premiums will go up 25 percent. Those numbers are close enough that there's probably no need to dive into the weeds to see if there are any gotchas. Premiums really are going up an average of about 25 percent next year. Here are five things to keep in mind:

  1. Yikes. That's a big number.
  2. The biggest increase is 145 percent in Phoenix. I have no idea why. However, you can be sure that Donald Trump and others will be bleating about Obamacare premiums going up "as much as 145 percent." (For the record, the lowest increase is -12 percent in Indianapolis. See Table 13 here for a full list.)
  3. The vast majority of people on Obamacare have incomes under 400 percent of the poverty level. All of them are shielded from ever paying more than a cap set by income level. At the lowest income level, they never have to pay more than 3 percent of their income. At the highest income level (about $100,000 for a family of four) they never have to pay more than 9 percent of their income.1 This means that in practice, the amount people pay will rise considerably less than 25 percent.2
  4. The 25 percent number assumes that you keep the same policy that you have in 2016. You can do better if you shop around. For example, HHS estimates that if everyone switched to the lowest-price plan in their metal level (bronze, silver, etc.), premiums would go down an average of 20 percent. Combined with point #3, this means that nearly all individuals will be able to avoid huge increases if they're really in dire financial straits.
  5. As painful as this is, all that's happening is that after being underpriced for years, Obamacare premiums are finally catching up to the original estimates from the Congressional Budget Office. A couple of months ago I suggested that premiums still had another 25 percent increase ahead, and this would likely be spread out over a couple of years. I was right about the size of the hike, but it's happening in one year instead of two. The good news is that these prices hikes truly should help to stabilize the market and prevent more insurers from abandoning Obamacare. It might even prod a few new ones to enter the market.

So that's that. Basically, this increase is painful, but was probably inevitable as insurers got more experience with the market. Subsidies and caps should shield a lot of people from the full pain of the increases, and the higher premium levels should be good for the long-term health of Obamacare. As for Republicans who plan to yell and scream about this, I have a deal for them: anyone who's serious about reducing the suffering of folks who will be hurt by higher premiums has my full support for boosting subsidy levels.

1The precise numbers for 2017 are 3.06 percent and 9.69 percent.

2There are other subsidies too that shield people from premium hikes. In particular, Andrew Sprung will be mad at me if I don't mention Cost Sharing Reductions, which many people can use to buy silver plans at reasonable prices.

Supreme Court nominee Merrick Garland has been waiting patiently for months to discover his fate. Here is Rick Hasen's prediction via Twitter:

Here's why I think @EdWhelanEPPC is wrong and Judge Garland gets confirmed in lame duck IF Democrats take Senate. First, Obama will be loyal to Garland and not withdraw nomination and Garland won't withdraw unless Clinton asks. Clinton won't ask despite pressure from the left to withdraw Garland for younger and more liberal candidate.

Getting Garland out of way during lame duck clears her first 100-day agenda without a nasty Supreme Court fight that eats other things. RBG has signaled she and/or Breyer will leave the court while Dems still control Senate (before 2017). This means she can get 1 or 2 more liberal Justices on Court and/or make it a big issue in the midterms, in the hopes of turning about Dem turnout problem in the midterms. With Garland done in [lame duck], Clinton has very good chance of 1, and some chance of 2, liberal appts before 2018 elections.

This is kinda sorta my take too. I agree that Obama will be loyal to Garland. That's all part of the implicit bargain when he nominated him. And I agree that Hillary Clinton will go along with that, partly for the reason Hasen outlines, and partly because it demonstrates a deeper loyalty: not just from Obama, but from Team Obama, which Hillary is part of. I think that was part of the implicit bargain too.

But will Republicans go along and confirm him? On the one hand, they've said they won't, and their base (i.e., talk radio) will go ballistic if they renege on that promise. On the other hand, in the real world (i.e., not talk radio) they know perfectly well that Garland is the best they're going to get. If they hold out, Clinton will nominate someone more liberal, and Harry Reid has already promised that if they go into endless obstruction mode, Democrats will nuke the filibuster and confirm Clinton's choice.

So here's where this leaves them. If they break their promise, they'll be tarred as feeble RINOs who pretend to be conservative but crumble at the first sign of Democratic opposition. If they keep their promise, they'll...be tarred as feeble RINOs who pretend to be conservative but always have some lame excuse for losing. We don't control every branch of government. What could we do? What a bunch of whiners.

In other words, talk radio is going to scorch them no matter what happens. This means that if they're smart, they'll go ahead and confirm Garland. It's their least bad option.

That doesn't mean it will happen. Fear of the base is powerful in the Republican Party. Still, the GOP leadership has some decisions to make, and how they're going to handle the tea party faction is one of their most important ones. There's not much question that they have to take them on sometime. The only question is whether November 9 will be the time.

NOTE: If Republicans hold onto the Senate, all bets are off. They'll still have some leverage in the next Congress, and might reasonably think they can negotiate a better candidate with Hillary Clinton.

With 15 days left until a possible nationwide rout of the Republican Party, National Review editor Rich Lowry complains about Democratic hypocrisy:

As Jonah pointed out in a G-File a week or two ago, the Democrats started out by arguing that Donald Trump was such an outlandish figure that he couldn’t even truly be considered a Republican; now, with Election Day just two weeks away and Trump performing badly, they are seeking to use him to sink as many Republicans up and down the ballot as possible.

Maybe we tune into different liberals, but that's sure not how I remember it. My recollection is that it was conservatives who argued that Trump wasn't a real conservative. Lowry, for example, called Trump a "philosophically unmoored political opportunist" and a "menace to American conservatism." Liberals, conversely, spent a vast amount of ink arguing that Trump was, in fact, the apotheosis of everything conservatives had been doing for the past 30 or 40 years. They had supported extremist talk show hosts. They had tolerated endless appeals to racist sentiment. They had impeached a Democratic president. They had adopted a strategy of pure obstruction after losing in a landslide to Barack Obama. They had promoted a bubble of cocky ignorance by convincing their followers that the mainstream media was entirely untrustworthy. They had indulged an endless series of bizarre conspiracy theories and pseudo-scandals for purely political benefits.

After all that, liberals argued, conservatives could hardly act shocked when Republican primary voters were attracted to a guy like Donald Trump. They had been poking this particular tiger for years, and now that it was biting back they had no idea how to stop it. That's how I remember things, anyway. Anyone disagree?

And as long as we're on political topics, I noticed this morning that Sam Wang's Senate forecast, which has been sneaking upward for the past week, has finally reached the point where he's now predicting Democrats will likely win control of the Senate 51-49. The overall Democratic probability of Democratic control is 83 percent. As near as anyone can tell, Donald Trump is now actively working toward this end, hoping that an epic Republican loss across the board will make his personal loss less of an insult. Or something. Nice work, conservatives!

A couple of days ago Ariana Lenarsky was on a flight from Austin to Los Angeles. As she was walking down the aisle of the airplane, a guy reached out and stroked her calf. She reported this to the flight attendants, who nodded knowingly because other women had already complained about the guy. After a bit of back and forth, the captain radioed ahead and police met the plane when it landed. No one wanted to press charges because it would have been more trouble than it was worth, which led to this:

Generally speaking, I'm not a fan of calling out ordinary schmoes on big media platforms, but wouldn't it be nice if there was a silver lining to the odious and repugnant Trump campaign? Maybe this could be it: If someone gropes you, haul out your phone, take his picture, and post it on your social media platform of choice. We'd need a hashtag for this. Maybe if it catches on, men will finally start paying a big enough social penalty for this crap that they'll stop doing it.

OK, OK, that won't happen. But maybe they'll do less of it. Baby steps.

Last night I went out to dinner and briefly checked in on things when I got back. While I was busy with some other stuff, I had this idle Twitter conversation:

I had been out of touch with the news for maybe six or seven hours, nothing more. And yet I was completely out of the loop on the latest campaign idiocy. I had no idea what this was about, which explains my foolishly casual tweet. This morning I found out:

This post has currently been read by 1.3 million people, and is ricocheting through the Trumposphere at light speed. Apparently oversampling is this year's deskewing.

In case you care, oversampling is a normal and longtime practice for folks who are running presidential campaigns—which is what John Podesta was doing. If you survey, say, a thousand people, you're likely to get a sample of only 130 African-Americans. This means that if you happen to be particularly interested in African-American voters, you need to deliberately oversample them in order to get a statistically reliable pool of respondents. The same is true for any smallish group of people. If, for some reason, you want to target Hispanic environmentalists or white women under age 30, you have to oversample them too.

Ordinary polls don't normally do this, though they do sometimes. For example, suppose everyone is obsessed with blue-collar white men and their alleged anger at the political system. A polling firm might want to oversample them in order to report how they really feel. That wouldn't affect the overall poll, though. It would be released as a separate survey on a matter of current interest.

Anyway, this is all obvious and simple, which explains my tweet above. But hell, what do I know? Do the yahoos peddling this stuff know it's nonsense but only care about ginning up an army of easily-duped malcontents on November 9? Or are they genuinely ignorant? Who knows? But naturally Donald Trump is all over it:

Jesus, this election is dispiriting. I'm beginning to think the whole thing is a spectacularly successful plot by the pharma industry to boost sales of anti-anxiety drugs and prescription blood pressure meds.

Adam Ozimek posted an item yesterday making the case that Donald Trump is wrong about something. Shocking, I know. But in the process he points to an interesting paper from a couple of years ago about the effect of sales taxes on Amazon purchases. A trio of researchers compared purchases from Amazon in five states both before and after Amazon started collecting sales taxes there:

They found that brick and mortar retailers saw a 2% increase in sales, and a decline of 9.5% for Amazon. This is hardly enough to save brick and mortar stores or stop Amazon.

True enough. The move to online retail is bigger than Amazon, and it's unlikely that anything would have stopped it or even slowed it down substantially. Still, here's the data from the paper:

These are...big effects. For costly items, the paper concluded that Californians reduced their Amazon purchases by a third. Even in low-tax Virginia, households reduced their Amazon habit by 11 percent. For all items, households reduced their Amazon purchases by 9.5 percent overall, but by 15 percent in California and 11 percent in Texas.

This coincided with an increase of "only" 2 percent at brick-and-mortar stores, but that's to be expected. As big as Amazon is, it's still a small fraction of the size of the entire retail market. A decline of 9.5 percent in Amazon sales spread among all brick-and-mortar retailers adds up to a small number.

Obviously this hasn't put Amazon out of business. But I think that misses the point. I wonder what effect it would have had on Amazon's growth ten or fifteen years ago? If sales tax has this much effect even now, when Amazon is practically a habit for millions of consumers, what effect would it have had back when Amazon was still relatively new in the non-book space? Bigger, I assume. And what effect would that have had on Amazon's growth? Substantial, I think.

One study doesn't prove anything, but this one sure suggests that an awful lot of Amazon's initial stratrospheric growth was due to Quill v. North Dakota. Maybe Jeff Bezos should send a thank you note to the Supreme Court.

Here's some good news on the employment front:

Retailers geared up to hire holiday-season workers in August this year, an unusually early start showing how competition has intensified for temporary help in a tight labor market....Companies and analysts say a number of trends are converging. The holiday-shopping season is starting before Halloween for many consumers, rather than the traditional day after Thanksgiving. There are fewer workers available, due to unemployment holding around 5% for the past year. And retailers are competing for the same employees as logistics firms, distribution centers and restaurants during the final months of the year.

This story is accompanied by a chart that inexplicably shows that seasonal hiring was strong in 2014, weaker in 2015, and then stronger still in 2016. Really? I don't recall 2015 being weaker than both 2014 and 2016. So take this all with a grain of salt.

Still, it's yet another data point that the labor market is truly starting to tighten up this year. It still has a ways to go, but we're making progress.

Today in the category of…oh, forget it. I don't have the heart for snark. It's just so goddamn tiresome. The Wall Street Journal headline on the right describes the latest pseudoscandal in Hillaryland, and it's obviously intended to make you think there's yet more fishiness in the Clinton family. In a nutshell, here's the story:

  • In early 2015, Virginia Gov. Terry McAuliffe recruited Dr. Jill McCabe to run for a state Senate seat.
  • Various organizations under McAuliffe's control donated lots of money to her campaign.
  • She lost.
  • Several months later, McCabe's husband was promoted to deputy director of the FBI. Because of that promotion, he "helped oversee the investigation into Mrs. Clinton’s email use." This was presumably in addition to the hundreds of other things that a deputy director has oversight responsibility for.

There's literally nothing here. Not "nothing substantial." Not "nothing that other politicians don't do." Literally nothing. There's not a single bit of this that's illegal, unethical, or even the tiniest bit wrong. It's totally above board and perfectly kosher. And even if there were anything wrong, McAuliffe would have needed a time machine to know it.

Honest to God, I'm so tired of this stuff I could scream. I've been joking about it lately by appending gate to every dumb little nonscandal that's tossed in Hillary's direction, and I guess I'll keep doing that. But our illustrious press corps needs to pull its collective head out of its ass. If you've got real evidence of Hillary being engaged in something fishy, go to town. I won't complain. But if all you've got is a thrice-removed, physics-challenged gewgaw that proves nothing except that you know how to play Six Degrees of Hillary Clinton,1 then give it a rest. It just makes you look like those monomaniacs with thousands of clippings glued to their wall and spider webs of string tying them all together.

Just stop it.

1Here's how it works:

  1. Make a list of the entire chain of command that had some oversight over the FBI's investigation of Hillary Clinton's email server. That's going to be at least half a dozen people.
  2. Make a list of all their close family and friends. Now you're up to a hundred people.
  3. Look for a connection between any of those people and the Clintons. Since FBI headquarters is located in Washington, DC, and the Clintons famously have thousands and thousands of friends, you will find a connection. I guarantee it.
  4. Write a story about it.

See how easy this is? But please don't try it at home. This is a game for trained professionals only.

I went out to get the paper this morning and noticed that my yard sign was gone. Some Trumpkin vandalizing Hillary signs? Nope. All the other signs in my neighborhood were gone too. City council signs, school board signs, Irvine mayor signs—all gone.

So I investigated. I went over to our sister neighborhood on the other side of the tennis courts. No signs. I don't know what that neighborhood looked like yesterday, but I'll bet there were some signs there.

I went farther afield and finally found some signs. But only about half as many as there used to be. How strange. There seemed to be no rhyme or reason to which signs were left standing. When I went even farther out, signs reappeared in full force. Half a mile from my house everything was normal. Out on the main drag, signs were still piled high, just as they've always been.

What's going on? Did some local busybodies decide that colorful yard signs were polluting our beautiful all-beige neighborhood? Did my local association suddenly decide they didn't care about the First Amendment anymore? Did a yard sign neutron bomb go off? It's very mysterious.

UPDATE: Our association manager says they had nothing to do with this. Mysteriouser and mysteriouser.