Kevin Drum

Capital vs. Labor in the US and Great Britain

| Fri Mar. 21, 2014 9:39 AM PDT

In the United States, the labor share of income has been declining steadily since about 2000. The same was true in Great Britain—until the Great Recession hit. Since 2010, the labor share of income has gone down 5 percent in the US and gone up 5 percent in the UK.

Why? Another way of describing what happened is that labor productivity continued rising in the US but declined in the UK. When labor is more productive, you need less of it, and that's what happened here. But again: why? Jason Douglas passes along some speculation:

Ben Broadbent, the Bank of England’s next deputy governor for monetary policy, showed students at the London School of Economics an interesting chart in a speech he gave back in January that shows that wages as a share of national income actually rose inBritain in the past few years, a period of deep recession and subsequent stagnation that Britain is only now climbing out of. Corporate profits’ share of the cake declined. In the U.S., the opposite happened.

Why might this divergence have occurred?....He challenged the students in his audience to come up with an explanation as to why the two economies had such a different experience. One possible explanation, according to economists, is that companies in the U.S. pruned their workforces more severely when the downturn hit than British firms did. British bosses, faced with higher layoff costs and wary of losing skilled staff as they did in previous recessions, decided to keep as many workers on as they could and take the hit instead to their bottom line.

But that still doesn't answer the question. Why were British bosses wary of losing skilled staff but US bosses weren't? It's true that labor markets are more regulated in Britain than they are here, which makes it more expensive to lay off workers, but they aren't a lot more regulated. In previous recessions and recoveries, Britain and the US followed almost identical trajectories.

Perhaps a more useful framework for analyzing this is to look instead at capital shares, which are the mirror image of labor shares. This means that in the US, the capital share of income has gone up, while in the UK it's gone down. Even if layoffs and wage growth followed similar paths in both countries, that could happen if capital returns recovered faster on this side of the Atlantic. And that's plausible: In the US, the financial sector has fully recovered from the recession and is now as big and profitable as it was in the mid-aughts. In the UK, the financial sector was treated more sternly and still hasn't fully recovered from the recession.

This may be about to change, as US banks run into headwinds and Dodd-Frank regulations start to bite. And in any case, this is mostly just a guess on my part. Still, it strikes me as a potentially more fruitful lens to look through. Thoughts welcome.

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How the Right-Wing Publishing Bubble Finally Burst

| Fri Mar. 21, 2014 7:51 AM PDT

A few years ago—maybe around 2004 or 2005—I remember walking into a Barnes & Noble1 and being astonished at the overwhelming number of right-wing polemics on display. Sure, it was right around a presidential election, but I strolled around to various tables to count the books and came up with something between 30 and 40. It was pretty breathtaking.

But apparently it wasn't to last. McKay Coppins reports today that this very success produced a bubble of sorts that inevitably burst. Publishers all dived in head first, starting up conservative imprints and opening up bidding wars for all the top names. Then it came crashing down:

What followed was the genrefication of conservative literature. Over the next 10 years, corporate publishers launched a half-dozen imprints devoted entirely to producing, promoting, and selling books by right-leaning authors — a model that consigned their work to a niche, same as science fiction or nutritional self-help guides....Editors at these imprints face unprecedented pressure to land cable news and radio provocateurs like Ann Coulter, rather than promote the combative intellectuals, like Allan Bloom and Charles Murray, on whom the business was first built.

“You are left to rely completely on cable and radio [for promotion] and as a consequence of that, you have to provide those ventures the type of material they want,” said [Adam] Bellow, who runs Harper Collins’ conservative imprint, Broadside. “It’s become a kind of blood sport and the most ruthless gladiator comes out on top.”

....The proliferation of conservative publishers has made the economics of their genre much tougher, with an ever-increasing number of books competing for an audience that hasn’t grown much since the ’90s. One agent compared conservative literature to Young Adult fiction, an unsexy niche genre that quietly pulled in respectable profits for years until the big houses took notice, and began entering into bidding wars for promising authors, and flooding the market in a frenzied attempt to find the next Twilight.

I always blamed Barack Obama for the death of conservative publishing, but I suppose it's all part of the same dynamic that Coppins is talking about. Basically, Obama drove conservatives into such frenzies of hysteria that their books lost the potential to appeal to anyone except the most hardcore dittoheads. I mean, Ann Coulter built a whole career on writing ever more outrageous things in order to get a rise out of liberals, but what can you do when you're competing with, say, Jerome R. Corsi, PhD? It's hopeless. He makes Coulter look positively sedate.

When everyone turns the dial to 11, you aren't a niche anymore. You're just a crackpot fringe. In this way, the death spiral of conservative publishing is merely a reflection of the death spiral of modern conservatism. It might turn around some day, but by the looks of things, it won't happen anytime soon.

1B&N was a "brick and mortar" outlet, a category that flourished in the 20th and early 21st centuries. Back then, books were physical objects that had to be "shipped" to "stores." Potential buyers would drive their "auto-mobiles" to these stores and then walk around to examine the titles in meatspace. When they were done, they would approach "cashiers," who were employees of these stores, and exchange "money" for volumes that were printed on paper and bound with glue and thread. It was all very complicated and unsanitary, and I can't really go into all the details in this short space. You can check out Wikipedia on your cerebral implant if you're interested in learning more.

Raw Data: Inflation Continues To Be Really, Really Low

| Thu Mar. 20, 2014 3:12 PM PDT

Apropos of nothing in particular, here's a chart that shows the inflation rate over (a) the past three decades and (b) the past three years. This is just to remind people that although the headline unemployment number has declined, there's really no sign yet of labor market tightness. No matter what your preferred measure of inflation is, it's (a) lower now than it has been for a long time, and (b) still on a downward path. Inflation is simply not a problem right now, and inflationary expectations continue to be well anchored.

"Markets" Weren't Rattled Yesterday. It Was Just the Usual Few Morons Overreading the Tea Leaves.

| Thu Mar. 20, 2014 10:24 AM PDT

James Pethokoukis summarizes the conventional wisdom about Janet Yellen's first run-in with the media yesterday:

A “market rattling” press-conference performance from Janet Yellen, and Wall Street is suddenly thick with Ben Bernanke nostalgia. “The more experienced Bernanke knew to avoid clarifying deliberately vague statement language,” wrote JPMorgan economist Michael Feroli in a research note. Feroli was referencing Yellen’s squishy, off-the-cuff remark that interest rate hikes might start earlier rather than later next year, or “about six months” after the end of the central bank’s bond buying program. A “rookie gaffe” is how economist Paul Edelstein of IHS Global Insight put it.

You can find about a million stories like this. But as much as I like to mock the panicky nature of Wall Street traders, I think everyone needs to take a deep breath here. As you can see in the chart above, the S&P 500 lost a whopping 1 percent of its value for a grand total of about 24 hours. By 1 pm today it was right back where it had been for the two days prior to the Fed meeting.

The numbers tell the tale: It's pretty obvious that Yellen, in fact, had only a tiny, transient effect on the market—exactly the same kind of effect Bernanke used to have whenever analysts trained their Wittgensteinian microscopes on, say, the precise linguistic difference between "extended" and "protracted." In the end, a few morons lost money by overreacting to Yellen's comments, and that's about it. This is not exactly a rare event in global high finance.

Twitter Wants Everyone to Reminisce About Their First Tweet

| Thu Mar. 20, 2014 9:26 AM PDT

Everyone is fascinated by Twitter's new FirstTweet tool, and who am I to buck the trend? In fact, I was genuinely curious to find out what my first tweet was. It turned out to be this:

Huh. I guess Kirkuk must have been in the news on that day. So what's the answer? What did happen to Kirkuk? Nothing much, apparently. It's still controlled by the Kurds; it hasn't seceded from Iraq; but it remains fairly autonomous from the central government. The most recent news, however, has been bad: two days ago a suicide bomber killed 30 people, and sabotage has shut down an oil pipeline into Turkey. In other words, it looks like Option B turned out to be the correct one.

Obama Ratchets Up Sanctions on Russia

| Thu Mar. 20, 2014 8:50 AM PDT

From the New York Times:

President Obama on Thursday announced he would expand sanctions against Russia, targeting individuals who support the government and a bank with ties to these associates, delivering on his warning earlier this week that it would ratchet up costs on Russia if it moved to annex the breakaway province of Crimea.

....Mr. Obama also said he had signed a new executive order that would allow him to impose sanctions Russian industrial sectors, presumably including its energy exports — a step that would dramatically tighten the economic pressure on Russia.

I expect we'll quickly get a pro forma response about how weak and vacillating this is from Bill Kristol, John McCain, and Charles Krauthammer. I can't quite get straight precisely what they want, but whatever it is, it's something higher on the belligerence scale than whatever the appeaser-in-chief is offering up.

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Here's the Only MH370 Theory That Actually Makes Sense

| Thu Mar. 20, 2014 8:41 AM PDT

We need more traffic here at Mother Jones, and that can mean only one thing: we need to pump up our coverage of the missing Malaysian airliner. Let's take stock of what we know:

  • Investigators have discovered that data was erased from the flight simulator belonging to one of the pilots.
  • The plane veered off course in response to a course change programmed into the flight management system.
  • The transponder was turned off.
  • The ACARS tracking suggests the plane flew in the general direction of India. However, no ground-based radar detected the plane, which means the ACARS signals were probably spoofed.
  • Debris has been discovered in digitized satellite imagery, but an actual physical search has failed to find anything.

This all suggests one thing: a computer genius. A very rich computer genius. One who knows how to cover his tracks and is accustomed to avoiding discovery.

This whole affair was engineered by Satoshi Nakamoto. I will be publishing a detailed version of this theory in Newsweek shortly.

New Report Claims Pakistan Hid Osama bin Laden for Years

| Thu Mar. 20, 2014 6:41 AM PDT

In the New York Times Magazine this week, Carlotta Gall has a long piece laying out a case that Pakistan's ISI not only knew where Osama bin Laden was hiding all along, it actively worked with him to recruit and train new members of the Taliban:

In trying to prove that the ISI knew of Bin Laden’s whereabouts and protected him, I struggled for more than two years to piece together something other than circumstantial evidence and suppositions from sources with no direct knowledge. Only one man, a former ISI chief and retired general, Ziauddin Butt, told me that he thought Musharraf had arranged to hide Bin Laden in Abbottabad. But he had no proof and, under pressure, claimed in the Pakistani press that he’d been misunderstood.

Finally, on a winter evening in 2012, I got the confirmation I was looking for. According to one inside source, the ISI actually ran a special desk assigned to handle Bin Laden. It was operated independently, led by an officer who made his own decisions and did not report to a superior. He handled only one person: Bin Laden. I was sitting at an outdoor cafe when I learned this, and I remember gasping, though quietly so as not to draw attention. (Two former senior American officials later told me that the information was consistent with their own conclusions.) This was what Afghans knew, and Taliban fighters had told me, but finally someone on the inside was admitting it. The desk was wholly deniable by virtually everyone at the ISI — such is how supersecret intelligence units operate — but the top military bosses knew about it, I was told.

America’s failure to fully understand and actively confront Pakistan on its support and export of terrorism is one of the primary reasons President Karzai has become so disillusioned with the United States. As American and NATO troops prepare to withdraw from Afghanistan by the end of this year, the Pakistani military and its Taliban proxy forces lie in wait, as much a threat as any that existed in 2001.

This is an adapted excerpt from Gall's upcoming book, The Wrong Enemy: America in Afghanistan, 2001-2014. The right enemy, she says, is Pakistan, which has been exporting anti-American terrorism for years:

In Punjab, mainstream religious parties and banned militant groups were openly recruiting hundreds of students for jihad, and groups of young men were being dispatched to Syria to wage jihad there. “They are the same jihadi groups; they are not 100 percent under control,” a former Pakistani legislator told me. “But still the military protects them.”

The United States was neither speaking out against Pakistan nor changing its policy toward a government that was exporting terrorism, the legislator lamented. “How many people have to die before they get it? They are standing by a military that protects, aids and abets people who are going against the U.S. and Western mission in Afghanistan, in Syria, everywhere.”

I don't have the chops to comment intelligently about this, but thought it was worth passing along. Needless to say, the double game the ISI has been playing has been obvious for a long time. Whether it's as bad as Gall says is something I'll defer to those who know more about this than I do.

"Purge" May Not Mean What You Think It Means

| Wed Mar. 19, 2014 12:18 PM PDT

Marcy Wheeler reports on today's Privacy and Civil Liberties Oversight Board hearing:

The most striking aspect of the hearing was the tooth-pulling effort to get the panel to define the terms they use....The most interesting redefinitions were for “purge” and “search.”

....Purge does not mean — as you might expect — “destroy.” Rather, it means only “remove from NSA systems in such a way that it cannot be used.” Which, best as I understand it, means they’re not actually destroying this data.

....“Purge.” To keep. Somewhere else.

Maybe not even somewhere else! Perhaps to the NSA, purging a record merely means flipping a database flag so that it won't show up in ordinary queries. There's no telling.

The Trade Deficit Is Down, But There's a Catch

| Wed Mar. 19, 2014 10:53 AM PDT

The Wall Street Journal reports on the latest trade deficit numbers:

The U.S. current-account deficit sank to the lowest level in more than 14 years at the end of 2013, reflecting a smaller trade gap and better returns on assets Americans own abroad....The gap, which has narrowed 20% from a year earlier, now represents 1.9% of U.S. gross domestic product. That’s the smallest shortfall as a share of the U.S. economy since 1997.

That's all good, but there's a caveat: since 2009, the overall trade deficit has been flat while net imports of oil have decreased by about $50 billion per quarter. This means that net imports of all other goods have actually increased. The fracking boom is helping us out, but only temporarily. We still have a fairly chronic trade deficit problem everywhere else. More here on why this was probably inevitable.