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. 



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.

The FDA's scientists have (once again) concluded that Plan B, the "morning after" pill, is safe for unrestricted sale over the counter. Unfortunately, the Obama administration has apparently decided that it would be politically unwise to allow this with an election coming up:

“I agree ... there is adequate and reasonable, well-supported, and science-based evidence that Plan B One-Step is safe and effective and should be approved for nonprescription use for all females of child-bearing potential,” [FDA Administrator Margaret Hamburg ] said.

“However, this morning I received a memorandum from the Secretary of Health and Human Services invoking her authority under the Federal Food, Drug, and Cosmetic Act to execute its provisions and stating that she does not agree with the Agency’s decision to allow the marketing of Plan B One-Step nonprescription for all females of child-bearing potential,” she said.

This is the first time an HHS secretary has ever overruled the FDA, and it's a blow to those of us who believe that Democratic administrations are more willing to be guided by scientific evidence than Republican ones. I guess somebody somewhere decided that independent voters might not approve of this, so now it's back to the salt mines.

I confess that I've never quite gotten all the enthusiasm over the Khan Academy. For those of you who have never heard of it, it's the brainchild of Salman Khan, an MIT graduate who started tutoring a cousin in math over the internet a few years ago. He eventually started recording the sessions and turned them into a vast library of short videos explaining various concepts in math and science. Later he branched out into other subjects, some done by other lecturers, and now has a collection of over 2,700 instructional videos at

I've dipped into the videos from time to time, and truthfully, they've always seemed perfectly competent but not really all that special. On the other hand, they do cover a lot of ground; Khan has a nice, engaging speaking style; and students can watch videos over and over if they're having trouble. But it turns out there's more to it. Via Tyler Cowen, here's a piece in Inside Higher Ed about what the Khan Academy does behind the scenes:

“I think too much conversation about Khan Academy is about cute little videos," Khan said in an interview last week. “Most of our resources, almost two-thirds of [the staff], are engineers working on the exercises and analytics platform. That, I think, is what we’re most excited about.”

....Using math and computer science concepts decidedly more advanced than most of those in Khan’s video library, the Khan engineers have trained the website’s exercise platform how to predict, with startling accuracy, how likely it is that a student will correctly answer the next practice problem — and whether that student will be able to solve the same type of problem a week, two weeks, and a month later.

They do this by accounting for hundreds of data points that describe, in numbers, the entire history of the relationship between a learner and a concept. “If [a user is] logged in, then we have the entire history of every problem they’ve done, and how long it took them, and how they did,” says Ben Kamens, the lead developer at Khan Academy. “So whenever anybody does a problem, we see whether they got it right or wrong, how many tries it took them, what their guess was, what the problem was, how many hints they used, and how long they took between each hint.”

The Khan engineers are also working to tweak the exercise platform so it does not confuse genuine mastery with “pattern matching” — a method of problem-solving wherein a student mechanically rehashes the steps necessary to solve that type of problem without necessarily grasping, conceptually, what those steps represent.

Interesting! Maybe all those out-of-work Wall Street rocket scientists are finally using their skills for something socially useful. There's more at the link.

Matt Yglesias is annoyed at President Obama for repeatedly saying that the rise of ATM machines has reduced the number of bank tellers. In fact, the number of bank tellers and the number of ATMs has gone up over the past decade. In 1999 American banks employed 1.62 tellers per 1000 people, and by the peak pre-recession year of 2007 that had gone up to 2.02 per 1000.

So Obama is wrong about this. But what I'm really curious about is something else: What are all these tellers doing? It's easy for me to believe that ATMs didn't reduce our need for tellers, but instead simply increased the number of banking transactions we engage in. Instead of carefully figuring out how much money we need every week or two, we just go to the ATM whenever we run low. So instead of two or three withdrawals a month, we all now pull money out of the bank two or three times a week. The effect on tellers might be pretty small.

But even if that's true (and I'm just guessing), why do we need more tellers? What are they all doing? My local bank is just a single data point, but one possibility is: nothing. Thirty years ago, when I went to the bank to do something, I had to wait in line. Not anymore! My Wells Fargo branch always has three or four tellers available, and the modal number of people waiting in line is zero. Most of the time, you just walk up to a teller and do your business.

This is great for me, of course, but frankly doesn't seem like a profit-maximizing strategy for Wells Fargo. Do I have any bank manager readers who can provide some insight into this? Is my branch unusual? Are tellers busy with other work when they aren't helping customers? Has the average teller transaction gotten more complex over the past decade? What's the story here?

One of the criticisms of Obamacare is that it gives employers a big incentive to drop healthcare coverage. Sure, they'd have to pay a fine, but they'd still save a bundle of money and it's not like they'd have to worry about their workers going completely without insurance. Employees would just go onto the exchanges and buy subsidized plans there. Sarah Kliff met with Lockton, a Kansas City-based company that consults with mid-sized companies on health insurance benefits, to put some numbers to this:

For the employer, dropping coverage is a pretty decent deal: A company would see its health care costs reduced by over 40 percent. They don’t drop to zero, however, since the employer would still be on the hook for the fines that come along with not offering coverage.

But for the employee, it’s a pretty lousy deal. Lockton ran the numbers, using data on how much employers pay for health insurance now and how much health insurance on the exchanges is projected to cost.They found that employers foot a significantly larger chunk of the insurance bill than the federal government would, even with the new subsidies they’d receive. The firm predicts their premiums would increase anywhere from 79 to 125 percent if they lose employer coverage and have to go to the exchange. There’s such a big variation because exchange subsidies vary by income: Those who earn more are eligible for a larger subsidy.

Here's my question about this — and it's a genuine question since I don't understand the dynamics here too well. It's fairly common in big companies for executives to have a better healthcare plan than rank-and-file employees. But that's usually limited to just the very top execs. At the level of director and below, everyone is on the same plan, and that's because health insurance providers aren't willing to let companies pick and choose who's on the group plan. It's all or nothing. So one of the things that will prevent companies from dropping coverage is that they'd have to drop it for everyone, and that would cause so much uproar in the managerial ranks that they couldn't get away with it.

There are a couple of reasons why this might not be a big deal:

  • Health insurers, in fact, might be happy to provide policies that cover supervisory personnel and no one else.
  • Or maybe they wouldn't, but it wouldn't be that big a deal. Companies would shunt everyone onto the exchanges, but give managers an annual bonus of some kind that would cover (say) 85% of the cost of a gold level plan. Everyone else would have to make do with whatever they could afford through the exchange.

So much of this depends on behavioral predictions that I imagine that there's really no way to know for sure how it's going to play out. But if employers do decide to start dropping health coverage en masse, what will that mean? Is it genuinely a bad thing? Or would it be a good deal in the long run, increasing pressure on Congress to hasten the day when we have genuine universal coverage in America? It's a good question.