Why Italy Is Broke

The Guardian reports today on Tommaso, the world's richest cat. We've seen stories like this before, so it's all a bit ho hum. But check this out:

In a handwritten will, signed on 26 November, 2009, Tommaso's mistress—the childless widow of a successful builder—gave her lawyers the task of identifying "the animal welfare body or association to which to leave the inheritance and the task of looking after the cat Tommaso". One of the lawyers, Anna Orecchioni, told the Rome daily Il Messaggero they considered several organisations without getting adequate guarantees of the cat's future comfort and welfare.

Seriously? Tommaso's owner left an inheritance of 10 million euros. You could build a cat-sized Taj Mahal with a permanent staff and still have 9 million euros left over. Are Italian animal welfare associations so bulging with cash that they can afford to turn down 10 million euros just because they don't feel like guaranteeing posh treatment for a single cat?

I may have been under the weather this week, but luckily Marian wasn't, which means catblogging goes on as usual. Today, Inkblot investigates the unusual sounds/odors/crinkling noises emanating from the shopping bag he's sitting next to. Can you guess how this turned out?

I see that Karl Rove's PAC unveiled a preposterously deceptive ad yesterday claiming that Elizabeth Warren is unfit for the Senate because she's....wait for it....too close to Wall Street. Yes, you read that right. Here on Earth Prime, of course, Warren is perhaps one of the financial industry's most loathed figures. Saying she's too close to Wall Street is sort of like saying Ralph Nader is too close to General Motors because, you know, he spent a whole year researching a book about the car industry.

So why choose such a comically outlandish attack? Well, keep in mind that Rove is famous for believing that you should always attack your opponent's strongest points, not just their weakest. And obviously Warren's whole reputation is based on being the Scourge of Wall Street™. So something had to be done about that.

Will it work? It seems a little too farfetched to me, even if Rove's people do have the resources to saturate the airwaves with this stuff. Even Warren's critics will have a hard time picking up the ball on this and running with it, and without a groundswell of echo chamber goodness it won't have legs.

Still, it's an interesting test of Rove's thesis. If he can get away with this, it's pretty good evidence that you can get away with anything.

NPR wanted to talk to some rich people about whether the "millionaire's surtax" would hurt the ability of small firms to hire more people. They had a tough time finding any:

We wanted to talk to business owners who would be affected. So, NPR requested help from numerous Republican congressional offices, including House and Senate leadership. They were unable to produce a single millionaire job creator for us to interview.

So we went to the business groups that have been lobbying against the surtax. Again, three days after putting in a request, none of them was able to find someone for us to talk to. A group called the Tax Relief Coalition said the problem was finding someone willing to talk about their personal taxes on national radio.

So next we put a query on Facebook. And several business owners who said they would be affected by the "millionaires surtax" responded.

[Three small-business owners responded. All said that higher personal taxes would have no effect on hiring decisions for their firms.]

"Those I would say were exceptions to the rule," responds Thune. "I think most small-business owners who are out there right now would argue that raising their taxes has the opposite effect that we would want to have in a down economy."

Which is worse? That neither Republicans nor business groups could find even a single person to back up their "job creators" nonsense? Or that the crack reporting staff at NPR couldn't figure out any way to contact millionaires except to ask Republicans and business groups? Don't they have any business reporters who might know a better way than Facebook to reach out to these folks?

Here is the final paragraph of Felix Salmon's summary of yesterday's summit to save the euro:

Europe’s leaders have set a course which leads directly to a gruesome global recession, before we’ve even recovered from the last one. Europe can’t afford that; America can’t afford that; the world can’t afford that. But the hopes of arriving anywhere else have never been dimmer.

I'm not sure things are quite as bad as that. It's true that some non-euro members of the EU, notably Britain, have declined to join a deal, but I think that was always inevitable and was probably priced in long ago. The euro is going to be saved by the countries that use the euro, not anyone else. It's also true that the ESM, the proposed bailout fund, is too small. But as bad as that is, it might not be disastrous. A trillion euros isn't chickenfeed, after all. In the end, success probably comes down to how seriously financial markets take the new deal.

I'm generally not a fan of economic theories that depend too strongly on setting expectations, but I think there's an argument to be made that expectations play a bigger role than usual in the euro crisis. If markets believe that Europe is committed to saving the periphery countries, then interest rates will come down significantly and the periphery countries will be saved. Only Greece is still a disaster even with low interest rates. The other periphery countries can survive in the short term just by getting their borrowing costs down.

So how likely is that? My guess is that the markets aren't too bent out of shape by Britain's opt-out. They probably aren't too upset by the modest size of the ESM either, as long as they believe that it's likely to get bigger if necessary. So it all comes down to one thing: will the eurozone countries unanimously agree to the new deal? Probably so. Britain's opt-out may be bad news generally, but the silver lining is that it makes approval more likely, since the deal now has to be done via an intergovernmental agreement rather than a treaty change. That's good news, since if markets think approval is likely, there's a good chance that disaster will be averted long enough to get the deal approved.

So, do I actually believe all this happy talk? Honestly, I'm not sure. I think it's possible that today's deal might work in the short term, but I don't know how long the short term is these days. What's more, the lack of mutual debt guarantees is bad news. The fact that the ECB continues to refuse to act as lender of last resort is bad news. The focus on budget deficits rather than current account imbalances is bad news. The lack of any serious plan to boost growth in the periphery countries is bad news.

In the end, that might be too much bad news. Maybe Felix is right after all: today's deal might avert disaster for a bit, but the eurozone is still tiptoeing right up to the edge. It's a mighty high-stakes game of chicken they're playing.

The Death of Style

Kurt Andersen writes in Vanity Fair this month about something that I've noticed too: visual style hasn't changed much over the past 20 years.

Think about it. Picture it. Rewind any other 20-year chunk of 20th-century time. There’s no chance you would mistake a photograph or movie of Americans or an American city from 1972—giant sideburns, collars, and bell-bottoms, leisure suits and cigarettes, AMC Javelins and Matadors and Gremlins alongside Dodge Demons, Swingers, Plymouth Dusters, and Scamps—with images from 1992. Time-travel back another 20 years, before rock ’n’ roll and the Pill and Vietnam, when both sexes wore hats and cars were big and bulbous with late-moderne fenders and fins—again, unmistakably different, 1952 from 1972. You can keep doing it and see that the characteristic surfaces and sounds of each historical moment are absolutely distinct from those of 20 years earlier or later: the clothes, the hair, the cars, the advertising—all of it.

....Now try to spot the big, obvious, defining differences between 2012 and 1992. Movies and literature and music have never changed less over a 20-year period. Lady Gaga has replaced Madonna, Adele has replaced Mariah Carey—both distinctions without a real difference—and Jay-Z and Wilco are still Jay-Z and Wilco. Except for certain details (no Google searches, no e-mail, no cell phones), ambitious fiction from 20 years ago (Doug Coupland’s Generation X, Neal Stephenson’s Snow Crash, Martin Amis’s Time’s Arrow) is in no way dated, and the sensibility and style of Joan Didion’s books from even 20 years before that seem plausibly circa-2012.

You can pretty quickly recognize a movie made in the early 70s or the early 50s. But the early 90s? In movies like Silence of the Lambs or Basic Instinct, only tiny clues give away when they were made.

Andersen's theory is that we're victims of future shock: "In some large measure, I think, it’s an unconscious collective reaction to all the profound nonstop newness we’re experiencing on the tech and geopolitical and economic fronts. People have a limited capacity to embrace flux and strangeness and dissatisfaction, and right now we’re maxed out." That doesn't really sound very convincing to me, but his basic observation about the inertia in fashion and other visual cues over the past couple of decades seems fair. Anybody got a better explanation?

Housekeeping Note

I'm giving in. I'm pretty badly under the weather today, and right now my computer monitor just looks like a blur — which is about what my brain feels like. So no blogging today. I should be back tomorrow. 

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UPDATE: Hmmm. Apparently Inkblot was roaming around the house in the early morning hours and decided to try his hand at blogging. Not bad for a novice!
 

The Wall Street Journal reports on the latest middle finger from the credit card industry:

Just two months after one of the most controversial parts of the Dodd-Frank financial-overhaul law was enacted, some merchants and consumers are starting to pay the price. Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.

That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.

"There will be some unhappy parties, as there always is when the government gets in the way of the free-market system," says Chris McWilton, president of U.S. markets for MasterCard Inc.

The sheer gall on display here is just mind-boggling. If card companies were really interested in a free market, they'd remove the clause in their standard contract that prevents merchants from charging higher prices on credit and debit card transactions. Merchants would then be free to pass along swipe fees to their customers or not as they saw fit, and the free market would determine the outcome. But they've resolutely refused to do that, and since Visa and MasterCard are an effective monopoly, merchants have nowhere else to go.

Over the past decade, Visa and MasterCard have spent billions of their marketing dollars on commercials like the one on the right, trying to persuade people that only a real self-centered bastard would so much as think of using cash for a small purchase these days. This worked largely because merchants didn't fight back. But now that the marketing campaign has successfully trained consumers to whip out their cards for anything more expensive than a candy bar, and it's too late for merchants to do anything about it, the fees go up.

Don't blame Dodd-Frank for this. Blame the card companies. They've done everything they can to prevent a free market in plastic, and this is the result.

Via Reihan Salam, here's an interesting, if limited bit of raw data. For each of the richest countries in the world it shows cash benefits (top white bar) and taxes (bottom dark blue bar) for the bottom 20% of the working-age population. Both are scaled to income. In the United States, for example, cash benefits on average amount to about 35% of market income, while taxes amount to about 11% of income. The red triangles show the net amount of cash transfer. In the United States, it averages about 24% of market income.

This doesn't include non-cash benefits such as health insurance, so it doesn't tell the whole story. But what the study does tell us is that over the past 30 years (a) income inequality has been rising nearly everywhere, while (b) cash benefits to the non-elderly have been declining almost everywhere. In the United States, those benefits amount to roughly 2% of GDP. That's pretty stingy. The full study is here.