The 2011 NAEP reading and math scores were released today for 4th and 8th graders, and unsurprisingly, they aren't very different from the 2009 scores. It's only been two years, after all. Here's the basic 20-year trend:

Since 1992, average scores have gone up four points in 4th grade and five points in 8th grade. Using the usual rule of thumb, that's an improvement of about half a grade level. Black and Hispanic students have done a bit better, improving their scores by roughly a full grade level since 1992. Here's a breakdown by reading proficiency levels:

This is not spectacular progress, but it's progress. Since 1992, the number of students testing "Below Basic" is down significantly in both grade levels for all ethnic groups, and the number of students testing "Proficient" or above is up a fair amount.

Test scores for 11th graders are usually not as encouraging: most of the gains in 4th and 8th grade seem to wash out in high school. But we'll have to wait a bit to see those scores. For the time being, it appears that we're continuing to make steady but slow progress. Whether that's good enough is a different question, and not one that the NAEP can answer. This is just a bit of raw data for your consideration.

The details of what happened at Jon Corzine's MF Global seem depressingly familiar. MFG borrowed a ton of money and then bought some European bonds that paid more than the interest on the loan. Profit! Of course, everything was hedged to within an inch of its life, so there was no risk of loss even if, say, Europe's debt crisis spun out of control and their bond yields gapped out. It was, as usual, a riskless moneymaking machine.

But guess what? There's no such thing as riskless. When European bonds began going south, and seemed likely to keep going south, lenders started getting nervous and demanded additional collateral. But MF Global was leveraged to its eyeballs and couldn't come up with any. This led to the usual dispiriting death spiral we've gotten so accustomed to.

Most of the talk about MF Global right now is about whether this is another "Lehman moment." Probably not. In any case, it seems to me more like another "Long Term Capital Management moment." The details of the trades are different, of course, but the overall bets are similar, the leveraging is similar, the collateral calls are similar, and even the proximate causes of collapse are similar (Russia for LTCM, Europe for MF Global). Plus, just to put a cherry on top, there's now a suggestion that MF Global might have been dipping into customer accounts to pay its bills. At least LTCM never did that.

So what are the lessons? All the usual ones that we pretend to learn every time this happens but never do. Extreme leverage is toxic. There are no riskless trades. Hedging is never perfect. Sovereign debt is just another kind of debt. That was the lesson of LTCM in 1998 and it was the lesson of 2008. The financial industry keeps saying that this time they've learned their lesson for sure, but guess what? They never do. They just can't stay away from the Great Casino, and unfortunately, unlike some poor schlub who loses his savings account in Vegas and only has to face the wrath of his wife when he gets home, when Wall Street loses, it loses big enough to cause problems for the entire global financial system. And we all pay the price for that.

Thus the need for regulation. Not because Wall Street is full of evil people, but because it's full of testosterone-fueled optimists who are convinced they can never lose. That's fine as long as they do it with their own money. But when they do it with mountains of debt it's not. The only question then is who's going to collapse next and how much damage they're going to leave in their wake, not whether anyone is going to collapse.

This may not be another Lehman moment. Not yet. But it does suggest that American exposure to Europe's problems is greater than anyone wants to acknowledge. It all depends on how many more MF Globals are hiding in the woodwork.

Good News of the Day

Bank of America has caved in:

Bowing to a national flood of protests, Bank of America Corp. is calling off its plan to charge customers $5 a month for using its debit cards to make purchases — a strategy that proved a public relations disaster for what once was America's biggest bank.

As I said the other day, there's no telling how this is going to work out in the end. Banks are going to keep dreaming up new fees to make up for their lost interchange revenue, and only time will tell how those fees shake out. However, I'm tentatively pleased to see what happens when fees are out in the open instead of being hidden: the market speaks, and it speaks loudly. Banks are going to have to actually compete on fees now, and in the end that should benefit consumers by producing lower overall banking costs. Keep your fingers crossed.

Me, writing three months ago about California's LA-San Francisco bullet train project:

I'm no engineer, but I'm willing to risk a few C-notes that this project ends up at $100 billion or more in 2011 dollars. Any takers? This is a very long-term bet, of course, since the line isn't scheduled to be finished until 2020—and I'm willing to put up a few more C-notes that it'll be more like 2025 or 2030.

The LA Times, today:

California's bullet train will cost an estimated $98.5 billion to build over the next 22 years, a price nearly double any previous projection and one likely to trigger political sticker shock, according to a business plan scheduled to be unveiled Tuesday. In a key change, the state has decided to stretch out the construction schedule by 13 years, completing the Southern California-to-Bay Area high speed rail in 2033 rather than 2020.

In fairness, this $98 billion estimate is still only $65 billion in 2011 dollars, so I haven't won the first half of my bet yet. But it's sure looking like I won't actually have to wait until 2020 to do so. At the rate that new, "more realistic" estimates are being shoveled out the door, we'll hit the $100 billion mark in another few months.

Greece Finally Rebels

Did anyone expect that the latest deal to rescue the eurozone would collapse quite so quickly and quite so spectacularly? Greek Prime Minister George Papandreou, in a surprise both to the world and to his own party (and his own finance minister), announced last night that instead of simply accepting the recently concluded deal, he would allow the public to vote on it in a referendum. Since the public is distinctly unlikely to approve the agreement, pandemonium immediately broke out. Papandreou commands only a slim majority in parliament, and already two members of his party have resigned and several more are threatening to do the same, which would bring down the government. Stock markets have tanked all over the world, and emergency meetings are now the order of the day. Papandreou is holding one as I write this, and Nicolas Sarkozy and Angela Merkel will be meeting tomorrow in Cannes.

What happens next is anyone's guess. "It's all over. The government is about to collapse," one anonymous Greek official told the Guardian. This in turn would mean that Greece has simply reached the end of its austerity rope, unwilling to cut any further in order to appease the French and Germans. Britain's shadow chancellor seems to have poured a bit of fuel on the fire, suggesting that Greece's referendum was a good idea, a notion that isn't likely to make the (non-euro using) UK any more popular than it already isn't in the hallways of Paris and Berlin.

If the Greek government falls, and a new government demands a better deal, it's unclear what will happen next. It could be a prelude to Greece exiting the euro in a decidedly non-orderly way, and if that happens there's no telling if the euro will survive. Stay tuned.

The Tax Policy Center has now done a more detailed analysis of Rick Perry's flat-tax proposal, and guess what? It's really great for rich people! Since Perry's gimmick is that everyone can choose to stick with the current tax system if they want, nobody would end up paying higher federal tax rates under his proposal. So the only question is how much everyone's rates go down, and the chart below tells the tale. If you're smack in the middle of the middle class, your rate goes down about 2 percentage points. If you're a millionaire, your tax rate goes down 20 percentage points.1 Ka-ching!

On a side note, this is how you one-up Herman Cain. Perry's plan offers lower rates than Cain's 9-9-9 plan to every single income class. The poor pay less, the middle class pays less, and the rich pay less. Of course, this also means that Perry's plan produces way less revenue than Cain's plan: TPC estimates that it would produce $1 trillion less than current law in 2015. But TPC is using fusty, old-fashioned static analysis, while all the cool wingers use dynamic scoring, which assumes that Perry's tax plan supercharges the economy and therefore pays for itself. Just like Reagan's tax cuts and Bush's tax cuts. Caveat emptor.

1All of this is based on the assumption that the Bush tax cuts expire as scheduled. The "current rate" numbers are a little different if you assume that the Bush cuts are extended. But why would anyone bother to extend them if they're going to pass Perry's shiny new plan that just replaces the current code anyway?

One of the key things that's long convinced me that Obama Derangement Syndrome is way stronger than Bush Derangement Syndrome ever was is the disparate treatment of their wives. I occasionally saw some snotty comments about Laura Bush in various precincts of the blogosphere and the partisan media, but nothing either serious or sustained. But Michelle Obama? Holy cow. There are times when you'd think she was the antichrist. The poor woman decides to make childhood obesity one of her focuses — about as First-Ladyish a subject as you can possibly imagine — and gets hammered by the wingnut brigade for supposedly being the vanguard of Stalinesque Big Government rules decreeing exactly what all of us will and won't be allowed to eat in the future. And that's just for promoting the idea of better nutrition and more exercise for kids!

Simon Maloy has more, treating us today to a dissection of a new column from Joe Curl that's headlined — in unwitting Dr. Seuss style — "The very angry first lady Michelle Obama." The First Lady, says Curl, is back, "and she's madder than ever," "ready to spew her bilious disgust with America on the campaign trail," blah blah blah.

I mean, it's comical in a way, but weirdly revealing in another. The level of blind, lick-spittled rage it takes to produce this stuff is pretty remarkable. And presumably there's a ready audience for it. You could almost understand where this came from in the case of Hillary Clinton: a feminist child of the counterculture who was deeply involved in policy creation was always bound to get under the skin of a certain type of social conservative. But Michelle Obama? Sure, she's a liberal and she supports her husband's initiatives, but her own work has centered on military families, childhood obesity, national service, arts education, and cultivating her organic garden. How traditional do you have to be to get the right-wing crazies to calm down?

James Pethokoukis is on a mission to show that rising income inequality isn't really a big deal. The big gun in his arsenal is a 2009 paper by Robert Gordon, which says:

This paper shows that the rise in American inequality has been exaggerated in at least three senses. First, the conventional measure showing a large gap between growth of median real household income and of productivity greatly overstates the increase compared to a conceptually consistent alternative gap concept, which increases at only one-tenth the rate of the conventional gap between 1979 and 2007....Second, the increase of inequality is not a steady ongoing process; after widening most rapidly between 1981 and 1993, the growth of inequality reversed itself and became negative during 2000-2007.

Pethokoukis, responding to a CJR piece by Ryan Chittum, says: "Chittum, nor other liberal economic pundits such as Ezra Klein, Jonathan Chait, Kevin Drum, Ryan Avent, have made an effort to dispute Gordon, hardly a conservative economist. Liberals don’t even like quoting that above bit."

Gordon is a good economist, and I haven't made an effort to dispute him because I don't really dispute most of what he says. I just think it's largely irrelevant. Let's take the various claims in his paper one at a time:

  • Comparing income growth to productivity growth is a bad way of demonstrating the sluggishness of middle-class wages. Fine. I rarely do this, because I happen to agree that it's problematic. But this has nothing to do with the existence of income inequality itself. For that, all you need to do is compare the incomes of the poor and the rich over time.
  • Income inequality didn't grow between 2000-2007. Yes, but those dates are egregiously cherry-picked. The dotcom bubble reached its height in 2000 (see chart at right), which meant that the income of the very rich also peaked that year. It fell during the dotcom bust and then started increasing again around 2003. It fell again during the financial crisis of 2008, and then started rising again within a year. If you look at a graph of the top 1%, you see peaks and valleys because their income is fairly volatile. But you also see a secular rise over the past three decades that shows no real signs of stopping.
  • Income inequality is mostly a phenomenon of the top 1%. This is absolutely true. The top 10% have done well over the past 30 years and the top 20% have done OK. Nothing spectacular though. The real action has been elsewhere: an enormous movement of income from the bottom 80% to the top 1% (see table at right). I'm not sure why Pethokoukis thinks this is evidence against the growth of income inequality, though. In fact, it's evidence that it's even worse than you think.
  • Inflation has been lower for the poor than the rich. I'm not qualified to judge this, but who cares anyway? If it's true, it might be good news for the poor, though it depends a lot on just why inflation rates for the poor are lower. If it's because cheap goods have gotten better and cheaper, that's great. But if it's because the poor have been forced to switch to ever crappier goods over time, that's not so great. In any case, this is mostly useful if you're interested in evaluating the lived experience of the poor. That's a fine topic, and one that deserves study. But if you're interested in income inequality, it's irrelevant. In that case, you just want to know how the private economy is allocating income to various classes of people, and the answer is pretty simple: over the past 30 years, less and less is going to the poor and middle class and more and more is going to the well-off and the rich.

Jon Chait has a somewhat more epic response here. The nickel version, though, is that Gordon's paper does say that income inequality has increased dramatically over the past three decades.1 He just has some caveats to the data. But while those caveats are interesting, none of them change the fact that the rich have hoovered up a vastly disproportionate and increasing amount of America's income growth since the mid-70s. There's just no getting away from that simple raw reality.

UPDATE: Matt O'Brien tweets: "I talked to Robert Gordon here. He was flabbergasted his work was being used to argue inequality is a myth." Here's more:

Consider the research and writing of Robert Gordon, a professor of social sciences at Northwestern University. He has done pioneering work questioning the extent of the aforementioned gap between productivity and median wages—work that Pethokoukis misappropriates to claim that income gains have been shared “fairly equally.” Gordon found that the productivity gap may be about a tenth the size as what is commonly thought, but, as he told me, that doesn’t negate the story about runaway wealth at the top of the income distribution. “The evidence on the long-term increase of inequality within the bottom 99 percent is ambiguous and complex, but what stands out like a searchlight is the unprecedented and increasing inequality between the bottom 99 percent and the top 1 percent,” Gordon told me.

There's more at the link on Pethokoukis's other claims.

1Here's the direct quote: "The evidence is incontrovertible that American income inequality has increased in the United States since the 1970s."

Felix Salmon directs us today to the Kauffman Foundation's fourth-quarter survey of prominent economics bloggers. Asked to assess the U.S. economy in one word, here's how they responded:

Take it for what it's worth, but econbloggers seem to be a pretty gloomy lot. The Kauffman group also leans right a bit, which makes this chart interesting too:

They're very bullish on the world economy, but they also think inflation will be higher, poverty will be higher, interest rates will be higher, and the budget deficit will be higher. Even more interestingly, they unanimously think that tax rates on the rich will go up. That can't be due to economic fundamentals, so presumably it means they have (a) a very high regard for the Democratic Party's ability to hold firm on allowing the Bush tax cuts on the rich to expire next year, and (b) a very low regard for the likelihood that a Republican will become president in 2012 and put them right back in place. I wonder why?

Earlier this year I wrote about "Defunding 2.0," a modern trio of Republican efforts to defund the left and impede people from voting for Democrats. By far the most important part of this effort is voter ID laws designed to make it harder for left-leaning constituencies (students, minorities, the poor) to vote. We're finally starting to see the mainstream media pay some attention to this lately, and today David Savage puts it front and center in the LA Times. His poster child is a recently passed law in Florida:

Early voting was reduced from two weeks to one week. Voting on the Sunday before election day was eliminated. College students face new hurdles if they want to vote away from home. And those who register new voters face the threat of fines for procedural errors, prompting the nonpartisan League of Women Voters to suspend voter registration drives and accuse the Legislature of "reverting to Jim Crow-like tactics."

What is happening in Florida is part of a national trend, as election law has become a fierce partisan battleground. In states where Republicans have taken majority control, they have tightened rules for registering new voters, reduced the time for casting ballots and required voters to show photo identification at the polls. The new restrictions were usually adopted on party-line votes and signed by Republican governors.

....Republican lawmakers say Democrats and minority groups are overreacting. "We're going to have a very tight election here next year, and we need to protect the integrity of the election," said Rep. Dennis Baxley, a Republican from Ocala. "When we looked around, we saw a need for some tightening."

I think we all know exactly what "integrity of the election" means to Rep. Baxley. After all, Florida has only suffered from two types of serious voter fraud in the past decade. The first is absentee ballot fraud, which Florida's bill does nothing to address because absentee voters tend to be upscale and Republican. The second is widespread database errors in 2000 that prevented people from voting. The Florida bill also does nothing about that, because those problems mainly affected Democratic-leaning voters.

So: Florida's bill addresses a problem that's essentially nonexistent, and does so in a way that will likely suppress left-leaning votes. "It could easily decide the outcome," says election law expert Rick Hasen. Conversely, it does nothing to tighten up on areas that actually have caused problems in the past, but that mostly favored right-leaning candidates.

I report, you decide. What do you think the real purpose of Florida's shiny new voter ID law is?