The Holy Sepulchre of Apple

Andy Crouch defends the cult of Apple by calling it "a religion of hope in a hopeless world, hope that your ordinary and mortal life can be elegant and meaningful, even if it will soon be dated, dusty, and discarded like a 2001 iPod." Andrew Sullivan concurs:

This is certainly why my own conversion to Apple, and my deep loyalty to the company and its products, somehow felt comforting in the last decade. Their style elevates me, their power and reliability I have come to take for granted. Their stores have the innovation and beauty that a renewed Christianity would muster in its churches, if it hadn't collapsed in a welter of dogma and politics.

Seriously, guys? Come on. I've used Macs. I've been in Apple stores. Not in Manhattan, granted, but then, most Apple stores aren't in Manhattan. The last time I was in one, it consisted of a whole bunch of white tables with various products laid out on top. Seems to me we should expect better of our churches.

Steve Jobs's reality distortion field is justly famous, and as a former marketing guy I'm deeply envious of his talents. But I have to say, there's something wrong with the world if we've gotten to the point where an MP3 player or a laptop computer — even one that's designed nicely — is somehow supposed to redeem our faith in the infinite. Yikes.

Europe's Tough Choice

What should Europe do about its insolvent countries? Roughly speaking, the problem is fairly simple: Greece and Ireland are basically bankrupt, and Portugal might be too. Probably not Spain, but you never know. In any case, as long as these countries have to keep taking on more debt on top of all the old debt that caused their insolvency in the first place, they'll never recover. But if they default on their debts, the banks that hold their notes will implode. This is bad, because those banks are largely French and German, and France and Germany really don't want to see their biggest banks implode. So that means making good on the debt, which basically means that French and German taxpayers are bailing out Irish, Greek, and Portuguese taxpayers. French and German taxpayers aren't very thrilled with this plan.

But the end is near regardless, and Felix Salmon provides an explanation of the options:

To use a US analogy, the choice facing Europe right now is whether to deal with its peripheral nations like Frannie, like AIG, or like General Motors.

The Frannie approach means a fiscal union: their debts are our debts. The AIG approach is the current “tough it out” one, where the hoped-for outcome is that a solvency crisis can be solved with liberal applications of government liquidity. But that only happens when you have strong growth — share-price growth in the case of AIG, with lots of expected future profitability, or economic growth in the case of countries like Greece, Portugal, and Ireland. And right now it’s impossible to see how a country like Greece can possibly grow its way out of its debt trap.

Finally, there’s the GM approach: restructure the debt, and get back onto a long-term sustainable footing. It’s harder for countries than it is for companies. But it might well be the least-bad option, by some large margin.

I don't know quite how the details are going to work out, but I think Felix is right: debt restructuring is coming, like it or not. That being the case, the sooner it's done the better. The alternative is waiting until a crisis forces the EU into action, and a crisis is always the worst and most dangerous time to do anything. It's time to bite the bullet.

Free Market Healthcare

As House Republicans embark on their sham vote to repeal healthcare reform today, Matt Yglesias points out that in the GOP's free market paradise virtually no one would have health insurance:

The only reason most people are insured today has to do with the non-market elements of the system. First, the tax code provides an enormous subsidy for employer-provided health insurance that ends up putting the majority of employed Americans into large risk pools at the expense of everyone who doesn’t work full-time for a big company. Second, Medicare mops up the largest pool of non-employed people by giving single-payer health care to everyone over 65. Third, a regulation bans discrimination against people with pre-existing conditions as long as they maintain “continuity of coverage” as they shift from one employer to another. Fourth, COBRA allows people to maintain continuity of coverage even if they experience transient spells of unemployment. Fifth, Medicaid and SCHIP give coverage to many classes of poor people who’d otherwise be unable to afford it.

Conservative apologists will object that we're setting up a straw man. Why, Republicans don't want to eliminate government involvement in healthcare! They just have a different idea about how to do it.

Sure. And like the Beatles said, we'd all love to see the plan. When it comes to things like Medicare, the GOP's plan was to oppose its creation, subsequently do their best to demolish it every chance they got, and then cynically bash Democrats when they actually did something to rein in its costs. Nice plan. And pretty much every other advance in healthcare coverage has been passed over their objection too. So what do they want instead? Ask them and they'll usually mumble something about tax credits and HSAs, an idea so patently deficient that partisans usually just toss out a few incoherent words about it so they can pretend to believe in something before abruptly changing the subject.

There is, simply, no acceptable free market solution for healthcare. There's only a free market solution if you're willing to let lots of poor people get sick and die, which most of us aren't. Given that, the obvious solution is to create pools of coverage, and the most efficient pool of coverage is everyone in the country. Eventually even Republicans will figure that out and we'll finally have a real chance to provide better coverage for everyone and seriously slow the growth of healthcare costs at the same time. Eventually.

The Kids These Days, Part 784

Yet another new study purports to show that kids these days are just a bunch of slacker goofballs:

An unprecedented study that followed several thousand undergraduates through four years of college found that large numbers didn't learn the critical thinking, complex reasoning and written communication skills that are widely assumed to be at the core of a college education.

....Forty-five percent of students made no significant improvement in their critical thinking, reasoning or writing skills during the first two years of college, according to the study. After four years, 36 percent showed no significant gains in these so-called "higher order" thinking skills.

....Howard Gardner, a professor at Harvard's Graduate School of Education known for his theory of multiple intelligences, said the study underscores the need for higher education to push students harder. "No one concerned with education can be pleased with the findings of this study," Gardner said. "I think that higher education in general is not demanding enough of students — academics are simply of less importance than they were a generation ago."

Look: this might be true. I wouldn't be surprised. But how can anyone with higher reasoning skills claim that this demonstrates the declining importance of academics unless the study compares today's students to those of a generation ago — which this one doesn't? Without that, do we have any special reason to think that graduates of the Class of 1980 showed more progress in "higher order" thinking skills than today's kids? I don't think so.

Still, aside from the report's shocking finding that lots of students try to fill up their schedules with easy classes, there's a bright side to all this: "Students devoted less than a fifth of their time each week to academic pursuits. By contrast, students spent 51 percent of their time — or 85 hours a week — socializing or in extracurricular activities." According to David Brooks, this is perfectly suited to making them into the supergeniuses of tomorrow.

Jobless Recoveries, Take Two

Why did unemployment spike so sharply and recover so much more slowly than GDP during the current economic recovery (as well as every other recovery of the past 30 years)? I suggested this morning that part of the reason had to do with the demise of union contracts in particular and the more general social contract that followed from them: to some extent, firms in the past didn't immediately fire workers during a downturn simply because they were expected not to. Today that social contract is dead. Paul Krugman adds another guess:

The key point for productivity here may be that engineering a recovery from postmodern recessions is much harder than engineering a recovery from a recession more or less deliberately inflicted by the Fed; and as a result the recoveries tend to be long flat U’s rather than the V-shaped recoveries of yore. And to the extent that firms know this, they have less reason to hoard labor; they’re not going to need those laid-off workers for a long time.

Nick Rowe adds another point: perhaps our current recovery featured outsized unemployment because it was so concentrated in the construction sector. Unlike some industries, where you want to hold onto workers because their skills might be hard to find when the economy bounces back, construction skills are easy to find:

There's general human capital, which is useful at many firms, and firm-specific human capital, which is only useful at one firm. If your workers have firm-specific human capital, and you lose them, and need to hire new workers when demand returns, it will be costly to train the new workers for the particular skills they will need in your firm. So you won't want to lose your existing workers, and you will keep them on the payroll even if you don't need them right now.

But if your workers have general human capital, it doesn't matter if you lose them. You can lay off all your bricklayers in a recession, and just hire new bricklayers when demand returns. My guess is that the construction trades require a lot of general human capital and very little firm-specific human capital. Two building sites can swap bricklayers easily, with minimal re-training. "Welcome to your new job. The Porta-Potty is over there. Start laying bricks here". Am I right?

Let's combine these two observations. In the postwar period, I don't think it's quite right to say that recessions were deliberately inflicted by the Fed. Rather, they were largely inflicted by the automatic operation of Regulation Q, which imposed caps on the interest rate that banks and S&Ls could pay on deposits. When economic expansions got a little too robust, and inflationary pressures pushed market rates on treasury bills and corporate debt above Regulation Q ceilings, depositors would withdraw their funds from banks and invest them elsewhere. This loss of deposits caused an immediate shutdown in the mortgage market, which in turn caused an immediate turndown in the construction market. This cooled down the economy, and eventually market rates declined and money flowed back into banks. Next stop: recovery.

In other words, we have plenty of experience of recessions caused by a turndown in the construction market. For over 20 years, this was the primary lever by which the economy was managed, and it didn't cause long, jobless recoveries. It's true that the construction industry and organized labor didn't much care for this system, but they accepted it anyway because it so patently worked well as a countercyclical economic tool. (It's long gone, of course. Regulation Q disappeared in the 70s, a victim of inflation and financial market deregulation.)

So what's the difference between then and now? The construction sector is crucial to both eras, but the difference is that Regulation Q was so effective: it shut down the credit market at the first sign of irrational exuberance, but it also eased up at the first sign of recession. Everyone knew this, which I imagine gave firms a certain amount of confidence that postwar downturns would be sharp but short.

Our current downturn offers no similar assurance. The credit market got far, far out of hand before the 2008 crisis cut it off at its knees, and there's no longer anyone or anything that can wave a magic wand and bring the construction industry back to life. And once again, everyone knows this. Back in 2008 there was no reason to think that the construction industry was going to recover soon, and no reason to think it would fuel a more general recovery even if it did. So firms hunkered down for a long downturn and laid off as many workers as they could.

All of which is a long way of saying that I'm not sure construction holds the key to anything this time around. There was a huge collapse of credit throughout the economy in 2008, and every sector is now engaged in a long, slow process of deleveraging. Given the uncertainty surrounding this mechanism of recovery, it strikes me as unsurprising that firms are reluctant to rehire.

Quote of the Day: The Fourth Amendment Blues

From a Florida state appellate court, after reviewing a case in which police officers claimed that a search of a defendent's apartment in a drug case was legal because he invited them in and then cheerfully volunteered the location of his hidden stash:

The judge may have punctiliously performed the duties of his office in this case, but, when considering the large number of “consent” cases that have come before us, the finding of “consent” in so many curious circumstances is a cause for concern.

Indeed. Click the link for more. This is such an obvious case of police perjury that a Hollywood screenwriter would probably turn it down as a little too contemptuous of Southern law enforcement. Despite that, the appellate judge had no choice but to let the search stand. Lovely.

Portugal's Experiment With Drugs

Glenn Greenwald wrote a report for Cato a couple of years ago that gave high marks to Portugal's experiment with drug decriminalization, and now a study in the British Journal of Criminology largely gives it high marks too:

Faced with both a public health crisis and a public relations disaster, Portugal’s elected officials took a bold step. They decided to decriminalize the possession of all illicit drugs — from marijuana to heroin — but continue to impose criminal sanctions on distribution and trafficking....As the sweeping reforms went into effect nine years ago, some in Portugal prepared themselves for the worst. They worried that the country would become a junkie nirvana, that many neighborhoods would soon resemble Casal Ventoso, and that tourists would come to Portugal for one reason only: to get high. “We promise sun, beaches, and any drug you like,” complained one fearful politician at the time.

But nearly a decade later, there’s evidence that Portugal’s great drug experiment not only didn’t blow up in its face; it may have actually worked. More addicts are in treatment. Drug use among youths has declined in recent years. Life in Casal Ventoso, Lisbon’s troubled neighborhood, has improved. And new research, published in the British Journal of Criminology, documents just how much things have changed in Portugal. Coauthors Caitlin Elizabeth Hughes and Alex Stevens report a 63 percent increase in the number of Portuguese drug users in treatment and, shortly after the reforms took hold, a 499 percent increase in the amount of drugs seized — indications, the authors argue, that police officers, freed up from focusing on small-time possession, have been able to target big-time traffickers while drug addicts, no longer in danger of going to prison, have been able to get the help they need.

But there's also this:

The numbers aren’t all positive. According to the latest report by the European Monitoring Center for Drugs and Drug Addiction, the number of Portuguese aged 15 to 64 who have ever tried illegal drugs has climbed from 7.8 percent in 2001 to 12 percent in 2007....Heroin use jumped from 0.7 to 1.1 percent, and cocaine use nearly doubled — from 0.9 to 1.9 percent. In other words, said Keith Humphreys, a professor of psychiatry at Stanford University, the changes in Portugal have had a somewhat expected outcome: More people are trying drugs.

....Hughes [] takes issue with Humphreys’s argument that drug use, in general, is increasing at a dramatic clip. What’s most relevant, she said, is not the percentage of people reporting using drugs at some point over some course of their lifetime, but the percentage of people reporting using drugs in the past year. “That’s going to be affecting the government and communities now,” she said. And here, the increase of Portuguese reporting illicit drug use is much smaller — up from 3.4 percent in 2001 to 3.7 in 2007.

Overall, then, this data suggests that decriminalization has produced more experimentation but not a lot more long-term drug use. If, say, an extra 0.7% of the population experiments with drugs because of the laxer laws, but nearly all of them give it up after a short time, that would produce over six years an extra 4.2% of the population that's "ever" tried illegal drugs. Thus a lifetime use rate that goes up from 7.8% to 12%. On the other hand, if most of them give it up after a brief fling, that doesn't mean that actual usage rates have increased much. (But on the third hand, a small increase in the entire population might represent a fairly substantial increase among 17-21 year-olds. We'd need to see the entire data set to know for sure.)

In any case, Portugal is a great test bed. One of the big questions in drug policy is just how elastic the demand for illegal drugs is. It makes sense that if you lower the price of marijuana or cocaine, use will go up, and that lowered price can be in the form of either actual dollars or reduced risk of being fined or arrested. But as always, the question is: how much? If decriminalization increases drug use by a few percent, that's not bad — especially considering the massive downsides of the war on drugs. But if it doubles or triples drug use, the consequences are more severe. The more data we have on this, the better.

The Pom Pom Vote

The LA Times reports today that Los Angeles city councilman Jose Huizar recently directed his staff to prepare lists that graded civic leaders numerically on their level of support for him:

The lists include politicians, school principals, church pastors, museum officials, high school cheer squad advisors, police officers and even presidents of local American Legion posts.

High school cheer squad advisors?

Why We Have Jobless Recoveries

Alex Tabarrok noodles on the difference between postwar recessions and modern recessions:

Firms used to engage in labor hoarding during a recession and now firms are labor disgorging [i.e., firms used to hold onto workers during a recession, but now they fire them at the first sign of a slowdown]. As a result, labor productivity has changed from being mildly pro-cyclical to counter-cyclical. Why? I can think of four reasons. 1) The recession is structural, as Tyler has argued. If firms don't expect to ever hire workers back then they will fire them now. 2) Firms expect the recession to be long — this is consistent with a Scott Sumner AD view among others. 3) In a balance-sheet recession firms are desperate to reduce debt and they can't borrow to labor hoard. 4) Labor markets have become more competitive. Firms used to be monopsonists and so they would hold on to workers longer since W<MRP. Now that cushion is gone and firms fire more readily. What other predictions would this model make?

All of these things may be true, but I'd offer one further explanation: in the past, holding onto workers through a recession was simply part of the social contract. Economically, it didn't make any more sense in 1955 than it does today, but firms did it anyway because it was expected of them. In union-dominated industries, contracts demanded this kind of behavior. In non-union industries, corporations did it as a way of keeping unions at bay (since unions had a much easier time organizing industries that provided lousy benefits). And white collar industries didn't feel that it was right to treat their workers worse than blue collar workers were treated. All of this conspired to create a social custom that bound workers and firms together.

This all evaporated in the 80s, of course, as younger workers largely got tired of dedicating themselves to a single company for life and corporations didn't feel like they could compete with rivals who were more ruthless about downsizing. As a result, workers are now fired much more quickly during downturns and hired back more slowly during recoveries. It's no coincidence that we first saw this pattern following the 1991 recession. It's just one more example of economic behavior which is, technocratically speaking, more efficient, but in which the benefits of that efficiency flow pretty much entirely in only one direction.

WikiLeaks Strikes Again

It looks like Bank of America is about to have company:

A former Swiss bank executive said on Monday that he had given the WikiLeaks founder, Julian Assange, details of more than 2,000 prominent individuals and companies that he contends engaged in tax evasion and other possible criminal activity.

Rudolf M. Elmer, the former head of the Cayman Islands office of the prominent Swiss bank Julius Baer...told the Observer newspaper over the weekend that those named in the documents come from “the U.S., Britain, Germany, Austria and Asia — from all over,” and include “business people, politicians, people who have made their living in the arts and multinational conglomerates — from both sides of the Atlantic.”

It's going to be a while before we see any of this stuff, though. WikiLeaks is apparently so bogged down with its current activities that it has no idea when this stuff will be made public.