Over the past three decades, the growth rate in justifications for skyrocketing executive compensation has been nearly as high as the growth rate of executive compensation itself. Globalization makes a great CEO more valuable than ever. Tournament theory makes high pay inevitable. Companies are bigger these days. The skill sets of modern CEOs dwarf those of past eras. Pay is more closely linked to performance. Blah blah blah.

All of these things have a kernel of truth (aside from pay for performance, which is mostly a myth), but even collectively they don't explain much. What does explain a lot is two things: (a) stagnating worker pay has made a much bigger pool of money available for executive compensation, and (b) peer group comparisons inexorably ratchet up CEO pay. Because nobody wants to admit that their company is merely average, every company wants to pay its CEO more than average. But if every company wants to pay above the average, guess what happens?

Today, Peter Whoriskey of the Washington Post tells us that the practice of peer group comparison is widespread:

It wasn’t until recently, however, that its pervasiveness and impact on executive pay became clear. Companies have long hid the way they set executive pay, but in late 2006, the Securities and Exchange Commission began compelling companies to disclose the specifics of how they use peer groups to determine executive pay.

Since then, researchers have found that about 90 percent of major U.S. companies expressly set their executive pay targets at or above the median of their peer group. This creates just the kinds of circumstances that drive pay upward.

The chart on the right tells the familiar tale. Adjusted for inflation, cash compensation for line workers has actually decreased over the past few decades, and even when you include healthcare compensation it's grown only about 30% or so. In contrast, executive compensation over the same period has more than quadrupled.

Do they deserve this? Almost certainly not. There's simply no good reason that a CEO of 2011 is worth 4x more than a CEO of 1970. The reason their pay has gone up is simple: for all practical purposes, CEOs set each other's pay. And they keep raising each other's pay because they can. It's a pretty nice racket.

Rep. Eric Cantor, to the surprise of exactly no one, announced today that Republicans had summarily rejected President Obama's jobs bill. But all is not lost:

Mr. Cantor announced the House would consider elements of Mr. Obama’s jobs agenda in the coming month, including trade agreements the White House sent to Congress Monday and a tax break for government contractors.

So there you have it. The sum total of what the GOP is willing to consider is a trade pact with South Korea and a tax break for government contractors. Hold on a second while I perform a sophisticated econometric analysis of how many jobs this will create.

[Hold music playing.....]

OK, I've got it. None. This will have no noticeable impact on the economy at all. But then, that's the plan, isn't it?

Karl Smith looks at the latest housing and manufacturing data and feels optimistic:

There is no indication at the moment that construction is headed for contraction and the probability that manufacturing is contracting is headed downward. Thus, I believe a double-dip becoming less likely.

The Economic Cycle Research Institute looks at "dozens" of leading indexes and gets ready to slit its wrists:

The U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off....In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not “soft landings.”

So, who do you want to believe? I'd like to believe Karl, but unfortunately, I suspect ECRI has the better of the argument. There's just too much government stimulus coming to an end soon that plainly won't be replaced thanks to Republican unwillingness to do anything that might help the economy before next year's election. Obviously the stalemate in Europe isn't helping things either. As Greg Ip says, "A global economy with decent cyclical fuel and no obvious imbalances is being betrayed by politics. Policy has pushed us over the brink in the past when it was for our own good (ie, inflation was threatening). If it happens now, it will be the first recorded instance of it happening by obduracy instead of by choice."

We are deliberately creating a new recession. It is truly an amazing thing.

It's Greg Sargent Day here at the blog! Today he posts a chart that was worked up for him by the Tax Policy Center. The question it answers is this: if you applied various tax policies to estimated 2013 income, how would different income groups fare? Here's the answer for the very tippy top of the income spectrum:

The dark blue bar at the left represents Clinton-era policies. The light blue bar at the right represents the effects of healthcare reform plus Obama's current set of tax proposals: Letting the Bush tax cuts mostly expire for the rich, limiting the value of itemized deductions and some exclusions to 28 percent, taxing carried interest at regular rates, and eliminating tax breaks for oil and gas companies and for corporate jets.

So what happens? The well-off do better under Obama than under Clinton-era policies. The even-more-well-off also do better. The really-well-off also do better. And the genuinely rich? They do ever so slightly worse: their after-tax income is maybe 2-3% lower under the Obama proposals than under the tax rates of the Clinton era.

Class warfare! There's more at the link.

Greg Sargent says:

The left faces an institutional barrier: The attention to Occupy Wall Street notwithstanding, news orgs tend to find right wing demonstrations of popular unrest inherently more newsworthy and deserving of sustained coverage than left wing ones.

True or false? Is there actual evidence on this score from, say, the past 30 years?

It seems to me that the nuclear freeze movement of the 80s got a fair amount of attention. So did the anti-globalization protests of the late 90s. And the Iraq war protests of the aughts. And various gay rights marches and protests. Maybe they've gotten less coverage than the tea party has gotten, but that's not immediately clear.

My sense is that when the left actually mounts a sustained popular movement, it gets a decent amount of coverage. Maybe not as much as we'd like, but that's probably what everyone who mounts a protest thinks. The problem, I suspect, isn't that popular movements of the left get ignored, but that the left hasn't been mounting any big, sustained popular movements lately. The fault, dear Brutus, etc. etc.

Last night I asked if our schools still offered advanced classes. In comments, the overwhelming answer is yes. Here are some snippets:

Here in San Mateo county, the kids are tracked from middle school into the AP classes....Virtually every Massachusetts city and town has fully funded and very much active advanced classes....There are plenty of gifted programs at the middle school level. My daughter's (N.J.) school has them. And there are certainly more now than when I was in middle school (early '70s), when there were none....I'm a parent of a middle school student in a NYC public school. She had to apply to middle schools, and was admitted based on her grades, test scores and an interview. So the tracking goes on according to school, not class.

....NYC has G&T programs from kindergarten up — each of the 31 or so districts has its own district-wide G&T program, and there are citywide G&T programs....Tracking, regulars-honors-AP still exists and generally AP programs are far tougher than they were back in my day....In my daughter's middle of the pack public high school there are AP options for multiple classes in every subject as well as an honors track....I grew up in one of the richest counties in America in the 1970s and now my child is in school in a DC suburb. There is definitely much more tracking now than at that time....Advanced courses and tracking are as alive and well in affluent Montgomery County, Maryland, as they are in Singapore....I am a middle school teacher. It is true that tracking still exists.

A few commenters did report that honors/gifted/AP tracks are in danger, but mostly because of budget cuts, not pedagogical changes.

Some obvious caveats: my readership is almost certainly nonrepresentative. I probably have lots of readers who are middle-class and above and not too many who hail from the inner city. So this doesn't tell us much about practices at low-income schools. And of course, a few dozen responses is not the same as an actual survey.

Still, I'm now even more skeptical of the idea that tracking has gone the way of the dodo. In most areas, I think that G&T classes don't start until fourth grade, but that's been the case for a long time. Thus, it's entirely possible that teacher energy in grades K-3 is now devoted disproportionately to the slower children, which means that the more advanced kids get shortchanged. But hell, that was true in my second grade class in 1965, where my teacher just gave up and had me run one of the reading groups because I already read plenty well enough. In any case, it's not clear that this is really a very big deal in early grades anyway.

I don't plan to spend a ton of time on this subject, but if I run across further data I'll pass it along. For now, though, it looks to me as if academic tracking is alive and well at grades four and above, pretty much the same as it's always been.

This quote from Wolfgang Münchau is getting a lot of attention:

We are now in the stage of the crisis where people get truly desperate. The latest crazy idea, which is being pursued by officials, is to turn the eurozone’s rescue fund into an insurance company, or worse, a collateralised debt obligation, the financial instrument of choice during the credit bubble. This is the equivalent of putting explosives into a can, before kicking it down the road.

That's a pretty punchy quote! But I was happy to read Münchau's full piece anyway, because I've been puzzled for a while over the idea of "levering up" the EU rescue fund. The basic idea is that the fund is too small: rather than its current €440 billion, it needs to be somewhere in the neighborhood of €2 trillion. But nobody wants to pony up that kind of dough, so instead there have been proposals that the €440 billion be used as the equity tranche of a gigantic security that would be sold to private investors. Voila! You have €2 trillion at your fingertips. Europe is saved!

This didn't make much sense to me, but I vaguely figured that maybe I just didn't understand it. Sadly, I think I understood it all too well. The whole point of a rescue fund is that it's so rock solid that everyone breathes a sigh of relief and there's no longer any risk of bank runs or sovereign defaults. But private investors just aren't rock solid enough. As Münchau puts it, "When the eurozone CDO fails, there are no governments that can bail it out because the governments themselves are already the equity holders of the system. This leaves the European Central Bank as the last man standing. But the whole idea of setting up a eurozone CDO is to avoid this outcome."

Right. One way or another, the bailout is going to come from either national governments, the central bank, or both. Or, alternatively, there's not going to be a bailout and all hell will break loose. All the tricks in the financial rocket scientist's toolkit can't change this grim reality. Europe either ponies up eye-watering amounts of money for its teetering banks and teetering countries or faces financial catastrophe and the end of the eurozone. Eventually they'll have to decide which fate is worse.

Via Adam Ozimek, here's a handy chart that demonstrates something you probably thought you knew already: a high rating on Yelp is good for business. Harvard's Michael Luca did a clever study that took advantage of "discontinuity effects." Yelp rounds off its rating for public consumption, so a restaurant that crosses the boundary from, say, a rating of 3.2 (rounded down to three stars) to a rating of 3.3 (rounded up to 3.5 stars) gets an extra boost on its Yelp page. There's probably very little difference between 3.2 and 3.3, so if a restaurant's revenue increases it's most likely due solely to its Yelp rating.

Sure enough, that's what happens. As the chart on the right shows, revenue remains fairly flat as ratings go up slightly and then suddenly jumps as a restaurant passes the rounding-off point and gets an extra half star:

I present three findings about the impact of consumer reviews on the restaurant industry: (1) a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue, (2) this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and (3) chain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation. I then test whether consumers use these reviews in a way that is consistent with standard learning models. I present two additional findings: (4) consumers do not use all available information and are more responsive to quality changes that are more visible and (5) consumers respond more strongly when a rating contains more information.

How robust is this result? I'm not sure. Luca's regression suggests that revenue actually goes down except around the discontinuity, which is peculiar. Just eyeballing the chart without any lines drawn in, I can imagine instead drawing a simple upward-sloping regression line showing that restaurant revenue increases smoothly as reviews get better. That eliminates the anomalous downward trend, and it's not instantly clear that the standard error would be much bigger than doing it Luca's way. Unfortunately, the Greek-letter section of the paper is over my head, so I'm not sure. Yelp fans demand further research on this crucial topic.

UPDATE: Just to give you an idea of what I'm talking about, here's the chart redrawn with a single upward-sloping regression line:

This is just eyeballed, so don't take it seriously. Still, the data points are really scattered, and the fit looks equally poor on both Luca's version of the chart and mine. It's not clear to me that the discontinuity effect is really there.

Just to recap, in less than two months Rick Perry has:

  1. Suggested that maybe Ben Bernanke should be lynched.
  2. Declined to back off his contention that Social Security is an unconstitutional Ponzi scheme.
  3. Called climate change a "contrived phony mess" that was cooked up by scientists who have "manipulated data so that they will have dollars rolling in to their projects."
  4. Pissed off the conservative base by defending his decision to (in Michele Bachmann's immortal words) give "government injections" to "innocent little 12-year-old girls." Said Perry condescendingly: "What I don't get is what parents don't understand about an opt out."
  5. Further pissed off the conservative base by suggesting that if you disagree with his policy on in-state tuition for illegal immigrants, "I don't think you have a heart."
  6. Mangled a prepackaged debate attack on Mitt Romney so badly, and then followed up with a statement on Pakistan so inscrutable, that even his supporters started to wonder if he has a three-digit IQ.
  7. Proposed that US troops should be used to fight Mexican drug lords. In Mexico.
  8. Had to defend himself against revelations that his family leases a hunting spot called "Niggerhead."

I'm putting this up because you can't truly grasp the full scope of Perry's train wreck campaign unless you see the whole list in one place. It's really pretty stupendous. Has any top-tier presidential candidate in history ever imploded quite this quickly?

A couple of weeks ago I read Rick Hess's piece in National Affairs complaining that our national mania for "closing achievement gaps" has badly shortchanged our top students. Teachers are now focused so resolutely on getting slower students up to grade level that very little attention is given to high performers who are already above grade level and therefore pose no risk of hurting a school's NCLB goals. As a result, our best students are left to languish in boring classes and are falling ever further behind the best students in other countries.

I didn't entirely understand Hess's argument. There was something missing that I couldn't quite put my finger on. Today, in a Room for Debate roundtable devoted to discussing Hess's piece, Michael Petrilli fills in the missing link:

Over the past two decades, “tracking” as traditionally practiced has been virtually eliminated from the vast majority of America’s schools — with the exception of mathematics at the middle and high school levels. Whereas a typical middle school might once have had three tracks (remedial, regular and honors) for almost every academic subject, most schools have collapsed all this into one class. At the high school level, Advanced Placement courses — once reserved for the academic elite — have now been democratized through open-admissions policies. It’s “all together now,” in a very real way.

Aha! There are no advanced classes anymore? Everyone is just lumped together in a single classroom without regard to ability? I didn't know that, which just goes to show how out of touch I am with modern schooling.

But wait. It only shows that if it's actually true. But is it? There are certainly elementary school gifted programs still alive and well in lots of places. And as Petrilli says, high schools are practically crawling with AP classes these days — and democratized or not, AP classes are still honors classes even if they've been watered down a bit from their original ideal. That leaves only middle school, which I really don't know anything about. But if tracking is, in practice, still alive in elementary school and high school, then there's still quite a bit of tracking left.

So now I'm really confused. If this is really all about the demise of tracked classes, what's the story? I know that placement of kids in "vocational" tracks mostly ended decades ago, but basic academic tracking still seems to be very widespread. So what's the real complaint here? Teachers and parents with kids currently in school are invited to educate me in comments.