Kevin Drum

If Little Clouds of Doom Follow You Around, There Might Be Money In It For You!

| Fri Jul. 10, 2015 11:33 AM EDT

Via Tyler Cowen, here's an intriguing new paper that claims certain kinds of customers are—not to mince words—"harbingers of failure":

We show that some customers, whom we call ‘Harbingers’ of failure, systematically purchase new products that flop. Their early adoption of a new product is a strong signal that a product will fail — the more they buy, the less likely the product will succeed. Firms can identify these customers either through past purchases of new products that failed, or through past purchases of existing products that few other customers purchase. We discuss how these insights can be readily incorporated into the new product development process. Our findings challenge the conventional wisdom that positive customer feedback is always a signal of future success.

There's a chart, naturally, because Science™. For example, if repeated harbingers (dotted green line) account for half your sales, you're pretty much screwed. Your shiny new product has less than a 10 percent chance of success. The reason I find this all intriguing is that I have lately begun to wonder if I myself belong to this group. I use Firefox and I think it's great. Chrome sucks. I think Windows 8 is terrific on a tablet, far superior to either iOS or Android. And I read all my books on the Nook reader, which I like better than the Kindle reader.

Now, Firefox has had a pretty good run and may very well stay around for a while. But it's not looking like a winner these days. Likewise, Windows tablets account for—what? Maybe 2 percent of the market, despite Microsoft's massive marketing campaigns. And Nook, of course, is already officially dead, hanging on in limbo until it gives up the ghost for good.

So here's the deal: I'm willing to rent out my services as a harbinger. Send me your new tech products while they're still in testing, and then cross your fingers and hope that I don't love them. If I do, it's back to the drawing board.

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Greece Caves In

| Thu Jul. 9, 2015 7:59 PM EDT

Our story so far: On June 22nd, Greece proposed an austerity package of spending cuts and tax increases worth about €8 billion over two years. European leaders called it a credible proposal, the first they had ever seen from Greece. By June 24th, they had changed their tune. They were roughly OK with the €8 billion figure, but didn't like the Greek tax and spending plans for getting there. Later in the day, the Europeans responded by making substantial changes to the Greek proposal and sending back a heavily red-lined revision.

The Greek prime minister, Alexis Tsipras, was apoplectic, arguing that what mattered was meeting the deficit target, not meeting it in specific ways. "This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed," he said. Two days later he abandoned the talks and called a referendum on the European proposal. Last Sunday the Greek population overwhelmingly rejected the European plan 61-38 percent.

So how did that work out for Greece? Not so well:

Under a 10-page blueprint completed late Thursday, the country said it would undertake austerity measures worth between 12 billion and 13 billion euros ($13 billion to $14 billion), including raising taxes on cafes, bars and restaurants.

The amount is significantly higher than the package of cuts that Greek voters rejected in a hastily called referendum on the bailout Sunday. But nearly two weeks of a banking shutdown that has brought the economy to a virtual standstill have left this Mediterranean nation with few other options to avoid sliding into bankruptcy.

The Greek blueprint for pension cuts and VAT increases is essentially copied word-for-word from the June 24 European proposal. There may still be sticking points elsewhere (I haven't done an exhaustive line-by-line comparison of the two documents), but VAT and pensions were always the key areas of difference. Combine those concessions with the higher deficit target in the new blueprint and Greece hasn't just caved in to the Europeans, it's all but prostrated itself and begged not to be kicked out of the eurozone.

Or so it seems. There's always the possibility of gotchas hidden away in a stray word or two. But at a first glance, it looks like total capitulation. Two weeks of bank closings and import stoppages has given the Greeks a vivid taste of what life would be like if Europe forced it to abandon the euro—as it seemed they were all too willing to do—and that short taste was quite enough, thank you very much. Viewed through that lens, apparently another few years of German-enforced austerity didn't look so bad after all.

Quiz of the Day: What Is This Map?

| Thu Jul. 9, 2015 1:59 PM EDT

This map was released today as part of a 14-page research report. What is it?

Here are your choices:

  1. Donald Trump's claim of how many states Republicans will win if they nominate him for president.
  2. The creeping spread of socialism in Barack Obama's America.
  3. Other than white, the predominant color in each state's flag.
  4. Which states make it easy to look up health care prices.

Yeah, the answer is #4. Red means your state got a letter grade of F. In other words, 45 out of 50 states do exactly nothing to make health care pricing transparent for their residents. Here's how this plays out in real life:

If any single fact illuminates why reining in health care spending is going to be easier said than done, it might be this: we don't even really know why a typical, low-risk childbirth costs $1,200 at some hospitals and $12,000 at others.

....In Massachusetts, a state that passed a law in 2012 to make health care costs more transparent [but still gets a grade of F anyway. –ed.], a research team trying to track down the price of a simple left knee MRI without a contrast dye found themselves transferred to six or seven departments and playing phone tag for days. Among 22 hospitals in a survey by Barbara Anthony, a senior fellow at the Pioneer Institute, a free market public policy think tank, it took anywhere from 10 minutes to nearly a week and a half to get an answer. If it's that difficult to figure out how much it will cost to get a short scan to look at your knee, good luck trying to pin down the cost of the miracle of life.

Is there any other significant area of life where it's virtually impossible to find out how much something will cost before you decide to buy it? I sure can't think of one.

The full report is here, but it warns that "you will find little progress since last year and, in some cases, regression." Sounds like a fun read.

Will the Real Death Panel Please Step Forward?

| Thu Jul. 9, 2015 12:31 PM EDT

Death panels are in the news again. But it's confusing. First, here's the proposal:

Federal health officials are proposing that Medicare begin paying doctors to discuss end-of-life issues with their patients, six years after the “death panel” controversy erupted in the early days of the debate over President Obama’s health-care legislation.

....Sarah Palin, the Republican vice presidential candidate in 2008, ignited a political firestorm in 2009 when she denounced a provision in the health-care legislation that would have allowed Medicare to reimburse doctors for discussing living wills and other end-of-life issues with older patients. She said it would create a “death panel” that could decide who received care. The provision was removed from the final Affordable Care Act legislation.

But is this really Sarah Palin's "death panel"? Here's what she actually said:

Who will suffer the most when they ration care? The sick, the elderly, and the disabled, of course. The America I know and love is not one in which my parents or my baby with Down Syndrome will have to stand in front of Obama's "death panel" so his bureaucrats can decide, based on a subjective judgment of their "level of productivity in society," whether they are worthy of health care.

Later on, Palin said that she was referring to the idea of paying physicians to discuss end-of-life preferences with older patients. But that sure doesn't sound like what she was talking about. It sounds like she was talking about rationing care, and that's always been code for the Independent Payment Advisory Board—IPAB—which was tasked with keeping Medicare costs below a certain target. Here is National Journal a few weeks ago:

If a "death panel" never rationed health care, did it really earn the name?

That's the question for Congress this week: The House soon will vote to repeal the Independent Payment Advisory Board established by the Affordable Care Act, dubbed at various times a "death panel" and rationing board by its opponents.

...."These 15 political appointees will make all the major health care decisions for over 300 million Americans," then-Rep. Michele Bachmann said in 2011 during one of the Republican presidential debates. "I don't want 15 political appointees to make a health care decision for a beautiful, fragile 85-year-old woman who should be making her own decision."

So which one is the real death panel? Neither one, of course. It was all nonsense from the start. But apparently federal officials are going to take a crack at bringing back the one we killed, while Congress is going to take a crack at killing the one we kept. So we could end up with two death panels or with none.

But wait! There's more! You may recall that Republicans are also suspicious of evidence-based medical research. They were convinced that "comparative effectiveness" research was just a stealth measure to take treatment decisions out of the hands of local doctors and instead centralize them in the hands of green-eyeshade DC bureaucrats. In other words, a death panel. So there are actually three death panels. They're everywhere!

But don't worry about it. End-of-life counseling has always had bipartisan support, and only lost it in the frenzy of passing Obamacare. It's bound to come back eventually. And IPAB is simply a board tasked with recommending ways to keep Medicare spending under legislative targets. It does no rationing, and everyone knows it. However, Medicare spending has been so low recently that the board has had nothing to do. That's the only reason it might be killed off. (Though President Obama has promised to veto any attempt to get rid of it.)

For more on all this, check out Michael Mechanic's explainer on the end-of-life controversy here.

This Year, Everyone Is In Disarray

| Thu Jul. 9, 2015 11:18 AM EDT

Democrats in disarray!

The ongoing debate over trade legislation within the Democratic Party between pro-business and pro-labor forces has put deep divisions in the party on public display....It is in this context that many in the labor movement, and on the left generally, view the Trans-Pacific Partnership, now in the final negotiating stages, as an unmitigated disaster. From this vantage point, Republicans who vote for trade agreements are working on behalf of their corporate supporters. Democrats who support the TPP are worse, however, seen by many as traitors to their constituents.

....While the left is ascendant, the likely scenario for a resolution of the intraparty disagreement over trade is as follows: Until she secures the nomination, Hillary Clinton will voice the level of criticism of the TPP necessary to prevent the issue from serving as a mobilization tool for her rivals. Then, if she actually wins the presidency, she will most likely follow the path of her predecessor....After winning the presidency as an adversary of free trade, Obama in office became an advocate.

Republicans in disarray!

The party is warring over funding for disease research, bickering over an education bill and deeply divided on the possible renewal of the Export-Import Bank, an object of scorn among the far right.

....The broad disagreement on so many fronts lately is striking. Congress is almost certain, again, to fail to come to a timely agreement on a long-term highway bill. Republican leaders had to abruptly pull the emergency brake on a sweeping reauthorization of the Federal Aviation Administration, amid a tiff about privatizing air traffic controllers. As if all that wasn’t enough, a showdown over government funding is fast approaching.

....All of this acrimony has led some top Republican officials to wonder whether they’ll ever be able to get things in line.

So who's in more disarray, Democrats or Republicans? Sounds to me like the answer is Republicans, though I suppose it depends on just how bitter the TPP fight gets. In any case, Congress is off for the entire month of August, so most of this stuff won't blow up until September. Just in time for a government shutdown! Booyah!

Quote of the Day: Jeb Bush Is Still Chasing Economic Unicorns

| Thu Jul. 9, 2015 12:40 AM EDT

From Jeb Bush, asked about his economic plans:

My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours and, through their productivity, gain more income for their families.

Lots of people are mocking Bush for suggesting that Americans don't work long enough hours. But aside from being tone-deaf, he didn't really say anything wrong here. Economic growth is the product of hours worked and productivity growth, so he got that right. It's true that Bush's use of "productivity" in the third sentence is a bit confusing because he's suddenly using it in its generic sense, not its formal economic sense, but that's no more than the slight clumsiness that's inevitable in live settings.

In any case, an aide later explained that when Bush talked about longer hours, he was referring to the underemployed and part-time workers, not suggesting that Americans in general needed to work more weekends. That's fine. No one has a problem with that. The real issue here is different: Bush is once again merely stating economic platitudes. He wants 4 percent growth. Of course he does. Everyone wants that. He then repeats himself: he wants higher productivity and he wants the underemployed to work more hours. It's like saying his goal is to lose weight, and then "explaining" that this means more exercise and fewer calories. No kidding. But what's the plan for making it happen? That's what we're interested in.

I know, I know: lower taxes will supercharge the economy blah blah blah. Eventually he'll have a 20-page white paper that's about 19 pages of argle bargle and one page outlining his brilliant new tax plan. Wake me up if he ever says anything that goes beyond fantasyland.

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Quote of the Day: Second Thoughts Now Plaguing Greece

| Wed Jul. 8, 2015 11:22 PM EDT

From Iosif Perdikaris, a Greek pensioner who can no longer find insulin at any of his local pharmacies:

“How am I supposed to manage my diabetes without my insulin?” Mr. Perdikaris screamed at the pharmacist.

He said he was starting to regret voting against creditors’ terms for a bailout in last Sunday’s referendum.

“I voted ‘no’ and now look at this,” he said. “I can’t get my medications, and next week we may be using drachmas.”

This is just the start.

American Corporations Are Getting Flabby. They Need More Competition.

| Wed Jul. 8, 2015 9:48 PM EDT

Greg Ip says American corporations could use more competition. Preach it, brother:

In a perfectly competitive world, firms ought to exploit [...] cheap borrowing costs to add profitable new capacity and products, until all the added competition pushes profits down. That’s not happening.

....The main reason companies are reluctant to invest is that economic growth has been sluggish....Yet companies may also feel less compelled to invest because they face less pressure from competitors....Across the country, the rate of new-business formations has been trending down for decades.

....While the most comprehensive data on market concentration is available only until 2007, it supports the picture of ebbing competitive vigor. That year, the four biggest firms controlled at least half of the market in 40% of individual manufacturing sectors, up from 30% in 1992, according to Rineesh Bansal of Deutsche Bank: “The story of American business over the last generation…is one of declining competition.”

.....What could explain growing market concentration? John Kwoka of Northeastern University says that in the past 20 years, the Federal Trade Commission has become less likely to challenge mergers in industries with five or more big competitors, while maintaining stiff scrutiny where just a handful of competitors prevail.

As Ip says, the main reason for weak investment and slow startup growth is the sluggish state of the economy. But that only explains the past few years, and these trends have been going on for decades.

I remain uncertain about why there are so many fewer startups than there were 30 or 40 years ago. Some of it may be simply less demand for mom-and-pop businesses like restaurants and dry cleaners as chains have gobbled up more and more market share. Some of it may be increased regulatory barriers of various kinds. Some of it may be that outside of glamorous places like Silicon Valley, where VC money reigns supreme, ordinary bank loans to start a small business are harder to come by. I'm just not sure. I've read a number of reports about this phenomenon, but they typically show little except the gross numbers. There's simply not enough detail broken out to come to any firm conclusions.

Consolidation among big companies is a little easier to explain. There have always been incentives for big companies to merge, and those incentives are probably even stronger in an economy where competition is global. Still, in the past there was a strong pushback against that trend from antitrust authorities. That changed a few decades ago when Robert Bork convinced everyone that reduced competition per se wasn't a problem. As long as a merger would benefit consumers, it should be allowed.

That's a seductive argument, but I suspect it's lethal in the long run. If you look at the history of innovation over the past couple of centuries, there's little question that fear of competition—from both startups and from mature competitors—has been a key ingredient. If you let competition degrade, even with the best of intentions, you're going to pay for it eventually—and "eventually" may come sooner than you think. In fact, those chickens are already coming home to roost, and things are only going to get worse if we don't (a) start getting serious again about antitrust and (b) figure out why startup activity has declined. A dynamic economy needs both.

Today's Assignment: A Definition of Family That Everyone Can Love

| Wed Jul. 8, 2015 2:44 PM EDT

Will Saletan tweets unhappily that his son was "marked down 5 percent on a high school health test because he chose this 'incorrect' definition of family." David French is unhappy too:

How reassuring that our educators — in their infinite wisdom — have expanded the definition of “family” to “a collection of individuals who care for and about each other.” But to paraphrase The Incredibles — If everyone is family, then no one is. I’ve “cared for and about” my classmates in high school, college, and law school. I’ve “cared for and about” my colleagues at every job I’ve held. I guess we’re all family now.

Look, this is probably just a lousy question. Even Saletan and French, I assume, would agree that answer C is obviously incorrect. Adopted children are family. In-laws are family. Stepfathers are family. "Related by blood" just flatly doesn't work.

On the other hand, yes, answer E seems mighty broad—though I'm not sure if there's any decent way to succinctly define family at all. I'll note that my dictionary needs four separate definitions just to encompass the usage we're talking about here (i.e., not including crime syndicates, taxonomic classifications, etc.).

But there's no need to get too outraged about this. There's certainly value in teaching our kids that sharing DNA isn't the exclusive definition of family. And while we should probably be able to do better than answer E, the more I think about it, the harder it gets. Anyone want to take a stab? We all promise not to laugh.

Router Failure Grounds Entire United Fleet

| Wed Jul. 8, 2015 1:30 PM EDT

Greece is in trouble. China is in trouble. Puerto Rico is in trouble. The New York Stock Exchange has been shut down over a "technical issue." And United Airlines has halted all its flights:

United midday on Wednesday said that the grounding had been caused by a computer-network router that malfunctioned, which disrupted its passenger reservations system. That meant that many passengers couldn’t check in for their flights. The disruption affected some places more than others, but it covered the entire network, which was why United decided to ground its entire mainline and United Express fleet worldwide.

Yikes! The malfunction of a single router torpedoed United's reservation system for an entire day? That must be a pretty delicate network they're running there.