Kevin Drum

Chart of the Day: Oil Shocks

| Fri Aug. 13, 2010 1:03 PM EDT

James Hamilton has argued in the past that the spike in oil prices in 2007-08 can almost explain the ensuing recession all by itself. I doubt this is really the whole story, but I think it's been an underrated argument — and I think the historical impact of oil shocks in general has been underrated too. Today, Ryan Avent points to a 2009 paper by Hamilton where he quantifies things, and the chart on the right comes from that paper. It shows, roughly speaking, what happens to consumer expenditures when oil prices go up enough to reduce consumer income by 1%. The model Hamilton uses suggests a maximum response of 1.7%, but in reality it's bigger than that:

Following a decline that eventually would have reduced consumers’ ability to purchase non-energy items by 1.7%, we observe that on average consumers in fact eventually cut their spending by 2.2%. Why should consumption spending fall by even more than the predicted upper bound?

....One way that Edelstein and Kilian sought to explain these anomalies is by breaking down the responses in terms of the various components of consumption....The magnitude of the first two responses is in line with the simple expenditure-share effects, while the response of expenditures on durable goods is five times as big.

The first panel of Figure 16 looks in particular at the motor vehicles component of durables....Here the response is immediate and quite huge, with for example a 20% increase in energy prices in an environment with an energy expenditure share of 5% resulting in a 10% decrease in spending on motor vehicles. That there would be a direct link between such spending and energy prices is quite plausible.

To simplify then: oil prices go up, people stop buying cars, and that has a huge knock-on effect on the rest of the economy. Something to keep in mind before you buy stock in GM or Chrysler during the current period of (relatively) low oil prices. Those low prices might not last forever, after all.

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Quote of the Day: The End of Antibiotics?

| Fri Aug. 13, 2010 12:03 PM EDT

From Cardiff University professor Tim Walsh on the spread of a newly discovered gene called NDM 1 that makes a wide variety of bacteria antibiotic-resistant:

In many ways, this is it. This is potentially the end. There are no antibiotics in the pipeline that have activity against NDM 1-producing enterobacteriaceae. We have a bleak window of maybe 10 years, where we are going to have to use the antibiotics we have very wisely, but also grapple with the reality that we have nothing to treat these infections with.

That's from the Guardian, which reports that if the worst happens and we fail to find replacement antibiotics, transplant surgery will become virtually impossible, removing a burst appendix becomes a dangerous operation once again, pneumonia and tuberculosis come roaring back qas killers, and gonorrhea becomes hard to treat.

But then again, maybe we'll find some replacements. All those gene sequencing breakthroughs we've been hearing about have to be good for something, don't they?

(Via James Joyner.)

The Gift Card Activation Scam

| Fri Aug. 13, 2010 11:46 AM EDT

I guess I lead a sheltered life or something, but I didn't know about this:

Los Angeles resident James Myers stopped by a Target store in Culver City recently to buy a $25 gift card. Easy, right?

Not so much, it turns out. Inspecting his receipt, Myers discovered that he'd been charged $29 for the transaction. He was told that the price included a $4 "activation fee."

....Target isn't the only gift-card provider to charge an activation fee. American Express, for example, charges up to $6.95. Visa gift cards can come with activation fees of up to $5.95.

That's from LA Times consumer columnist David Lazarus, who notes that not only is $4 outrageously high for swiping a piece of plastic and pressing a couple of keys, but "the company offering the gift card already benefits in other ways." Like, say, taking in money now and getting to keep it until the gift card is used. Or the fact that some gift cards get lost and never redeemed at all. But enough is never enough, is it?

By the way, in the same column Lazarus reports that Wells Fargo and Bank of America have no intention of changing their habit of reordering debit card transactions even though Wells was just fined $203 million for doing it. "Say this about big banks," Lazarus writes, "They're persistent."

Every Click You Make

| Fri Aug. 13, 2010 6:00 AM EDT

Last week the Wall Street Journal ran a terrific series of stories called "What They Know." The general subject was personal privacy—or the lack of it—in the digital world, and the first article in the series explained how websites routinely track your movements on the web and collect a genuinely astonishing amount of personal information about you in the process. The Journal examined 50 sites using a test computer and discovered that these sites collectively installed a total of 3,180 tracking files—an average of 63 tracking files per site:

The state of the art is growing increasingly intrusive, the Journal found. Some tracking files can record a person's keystrokes online and then transmit the text to a data-gathering company that analyzes it for content, tone and clues to a person's social connections. Other tracking files can re-spawn trackers that a person may have deleted.

....Some of the tracking files identified by the Journal were so detailed that they verged on being anonymous in name only. They enabled data-gathering companies to build personal profiles that could include age, gender, race, zip code, income, marital status and health concerns, along with recent purchases and favorite TV shows and movies.

A full list of the sites they examined is here. The most intrusive were dictionary.com and msn.com, which installed over 200 tracking files each. The least intrusive were craigslist.org and wikipedia.org.

What to do about this? Europe, which generally has better rules than the U.S. regarding the collection and use of personal data, actually has tighter regulations about how long online data should be stored. After all, the local police might want to use it someday. The Christian Science Monitor reports that this is finally provoking a reaction:

Across Europe, a backlash against the storage of private data is growing. Civil society groups like the European Federation of Journalists have criticized the practice, and in Germany almost 35,000 people, including Justice Minister Sabine Leutheusser-Schnarrenberger, sued their own government over the issue.

"There is a real problem in Europe today. It is a breach of the European Convention on Human Rights, which says that everyone has the right to a private life. That fundamental right has to extend into digital life," says Christian Engström, a member of the European Parliament for Sweden's controversial Pirate Party, elected on a platform of digital rights.

This tension means that governments aren't always eager to restrict the collection of personal data online. Beyond that, though, there are technical difficulties for those who want to prohibit the practice. When Congress passed the Do Not Call law in 2003, their job was easy: everyone has a telephone number, and all you have to do is put those numbers into a database and tell solicitors not to call them. But there's no equivalent of a phone number in the digital world. Your computer's ID is its IP address, but most IP addresses change regularly. There's no way of creating a "Do Not Track" database and telling online solicitors to keep their tracking files away from everyone who signs up.

Alternatively, as Harlan Yu wrote recently, we could adopt the opposite approach: instead of asking users to register, we could require solicitors to register and then rely on browser settings that would prevent their domains from installing tracking files. Unfortunately, this has technical drawbacks as well, so Yu suggests instead a new standard that would allow your browser to notify every site you visit that you don't wish to be tracked:

The browser could enable x-notrack for every HTTP connection, or for connections to only third party sites, or for connections to some set of user-specified sites. Upon receiving the signal not to track, the site would be prevented, by FTC regulation, from setting any persistent identifiers on the user’s machine or using any other side-channel mechanism to uniquely identify the browser and track the interaction.

This would, of course, require legislation that requires online sites to honor the x-notrack request. That's the bad news. The good news is that whatever the eventual solution, the problem itself is finally getting some attention on Capitol Hill: Politico reported last week that Sen. Mark Pryor (D–AR) is writing a bill "aiming to give consumers more control over their online data....The focus of the bill, which is still in rough draft form, will be giving consumers the ability to opt out of being tracked across the Web." So stay tuned.

In the meantime, the Journal's full package of privacy articles is here, and they're well worth browsing through. It includes pieces that explain web tracking, cell phone monitoring, how much these tracking services know about you, the role of big companies like Google and Microsoft, and even advice on how to avoid tracking. You can't avoid it all, but there are things you can do to minimize it.

Scott Pilgrim vs. The Expendables

| Thu Aug. 12, 2010 4:58 PM EDT

So which movie will be the top grosser this weekend? In the red corner, we have Matt Zoller Seitz:

This weekend, "Scott Pilgrim" goes head-to-head with Sylvester Stallone’s 1980s-style, tough-guy action picture, "The Expendables," at the box office. ("Pilgrim" will win, trust me. Box office is driven by young viewers, and young viewers don't line up to see films starring 64-year-old men.)

And in the blue corner, Ben Fritz:

"The Expendables," directed by and starring Sylvester Stallone, has men of all ages excited to come to theaters this weekend, with pre-release surveys indicating it will sell about $35 million worth of tickets in the U.S. and Canada...."Scott Pilgrim vs. The World," based on a cult favorite series of graphic novels, has demonstrated only limited appeal among young men and is set to open to only about $15 million.

May the best man win. Which one are you planning to see?

Quote of the Day: El Salvadoran Sour Cream

| Thu Aug. 12, 2010 4:14 PM EDT

This is why I sometimes hate foodies. Here is Tyler Cowen explaining how to top off your frozen corn tamales after steaming them for ten to twelve minutes:

Serve with El Salvadoran white sour cream on top or to the side. (Honduran or Guatemalan white sour cream will do in a pinch.)

In a pinch! God only knows what chaos might ensue if you tried Nicaraguan sour cream!

(I'm kidding. Honest. But still.)

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Gay Marriage Getting More Popular

| Thu Aug. 12, 2010 2:36 PM EDT

And now for some good news:

It's only one poll, but it's clearly part of a multi-decade trend that's been moving in the right direction at the rate of a little over 1% a year. Until recently that is: in the past three years, polling on this question has improved at the rate of 3-4% a year. And this might end up being the greatest legacy of Vaughn Walker's decision in the Proposition 8 case. His opinion might not have much influence on the Supreme Court when they end up ruling on the issue, but it probably does have an impact on public opinion. People respond to the opinions of thought leaders and authority figures, and when judges and politicians start speaking out more openly about this, it makes it safer for ordinary citizens to follow suit. Some of that is probably what's happening here.

What's also remarkable — though not new — is the huge gender divide on this question: men are obviously far more threatened by the idea of same-sex marriage than women are. Being thought a sissy during childhood is a common and scarring experience for boys, but being thought a butch or a tomboy probably isn't such a wide or traumatizing experience for girls. In this particular case, men remain far more trapped in their traditional gender roles than women.

Fannie and Freddie

| Thu Aug. 12, 2010 1:45 PM EDT

Felix Salmon — tanned, rested, and ready — reads three op-eds about Fannie Mae and Freddie Mac in the New York Times today and comes away unimpressed. Whatever you might think of Fannie and Freddie, they aren't going away anytime soon:

The fact is, as John Carney says in his own op-ed (the most sensible, but also the narrowest, of the three), that the FHA and Frannie now back more than 95 percent of new mortgages. If they simply stopped buying new mortgages, the entire housing-finance business in the US would come to a screeching halt. No one could buy, no one could sell, and home values would be entirely hypothetical for years.

Yes, it's possible to slowly build an entirely private system of mortgage lending. But you can't do that overnight, as Poole seems to think. And he's completely wrong, too, when he says that “if the home finance market were fully private, then it would bear the losses from its own mistakes in pricing and insurance”. Not true: when there's a major housing crash, the government ends up bailing out the lenders whether they're public or private. Look at Ireland.

Two thoughts come immediately to mind. First, the only reason Fannie and Freddie are semi-public institutions in the first place is because the private markets wanted nothing to do with buying up mortgages when the idea was first broached. The original plan was that the FHA (created in 1934) would guarantee home loans and private industry would then step in to create a secondary market. But private industry wasn't interested, so in 1938 Fannie Mae was created to do it instead. So the question is: what's changed since then? If private industry wasn't interested in 1934, what makes us think they'd be interested now?

The answer, of course, is that lots of things have changed. But that's a two-edged sword and it leads to the second obvious thought: most European countries don't have anything similar to Fannie and Freddie, and they still manage to sell lots of houses there. There are pluses and minuses to the European model (and there have been proposals in the past to create an EU-wide GSE like Fannie and Freddie), but still, the fact that the European housing market exists and works adequately suggests that the U.S. could get by without Fannie and Freddie if we wanted to.

But, as Felix says, we probably can't get rid of them too quickly. We don't need another housing bubble, but neither do we need another housing crash. So while a private secondary market might be able to take Fannie and Freddie's place, it's going to take a while to create one that keeps the housing market working smoothly. In the meantime, we should concentrate on workable foreclosure reform and sensible housing policies, not bubble-era stuff like $1000-down mortgages. Fannie and Freddie need to be taken care of, but there's no rush.

The Permanent Campaign Meets the Obstructionist Senate

| Thu Aug. 12, 2010 1:07 PM EDT

Dan Drezner puts two and two together and wonders what it adds up to:

Executive branch burnout is a bipartisan phenomenon, and as the article notes, the real-time news cycle is only making things worse. This is particularly true on the foreign policy beat. Even if it's 3 AM in Washington, it's 6 PM somewhere else, and someone is doing something that will require an American response....After four years, even policy principals will find their brains going to mush.

On its own, this phenomenon wouldn't be that big of a deal — indeed, some personnel churn is likely a good thing, prevents groupthink and all that. The problem is that this trend is intersecting with another one — the increasing length of time it takes to appoint and confirm high-level personnel. With greater fixed costs involved in vetting and sheparding people through the confirmation process, presidents will be exceedingly reluctant to let these people go, which means that many of them will stay on for longer than perhaps they should.

The 24/7 news cycle has been partly responsible for turning the executive branch into a permanent campaign, and the kind of grueling schedule Dan is talking about here is what this mostly reminds me of. Nobody seriously thinks that even a superman can handle the rigors of a presidential campaign for more than 12-18 months, but that's what high-level White House positions have become. In fact it's worse than that. A guy like Robert Gibbs, for example, spent a couple of years in the pressure cooker atmosphere of the Obama campaign and then went straight into the frenzied atmosphere of the White House press room. Is it any wonder if maybe he's starting to crack a bit after nearly four years of this?

Obama Gains in the Polls!

| Thu Aug. 12, 2010 12:53 PM EDT

Here's a trivial little tidbit from the latest NBC/Wall Street Journal poll:

What a difference a couple of months makes. Nothing at all has changed in Obama's actual handling of the BP spill, of course. He's doing exactly the same things he was doing back in June. But now the leak has finally been capped, and that must mean he's doing a better job, right?

Fascinatingly, though, the poll also includes a comparison to approval ratings of George Bush's handling of Hurricane Katrina, and in that case time definitely didn't heal all wounds. In the immediate aftermath of the storm Bush's approval-disapproval rating was 48-48. A year later it had dropped to 36-53. I guess by 2006 people were just really, really tired of George Bush.