Felix Salmon:

American workers are facing a double whammy here: they’re losing access to private equity at exactly the point in time where private equity is becoming a very large and important part of the international capital markets. Meanwhile, it’s the rich foreign clients of Goldman Sachs — the global rentier class — who are getting that coveted access to equity in Facebook.

The two separate whammies here are:

  • The fact that fewer companies are going public, opting instead to finance themselves through private equity and trading their shares via investment banks who set up private exchanges to match well-heeled buyers and sellers. Ordinary schmoes like you and me don't have the opportunity to invest in companies that do this.
  • The steady decline of defined-benefit pension plans, which were managed by professionals who had access to a wide variety of investment opportunities, and the accompanying rise of defined-contribution plans like 401(k)s, which are managed by ordinary schmoes like you and me who have access to a very limited range of standard investment funds.

In other words, you and I don't get to invest in Facebook. Only rich people with access to the special private exchange set up by Goldman Sachs get to do that. And if this trend continues, you and I won't be able to invest in any of the hottest companies of the future. Only rich people and big fund managers will be able to do that, which means that the returns on their retirement portfolios will be a whole lot higher than yours and mine. And that's on top of the fact that their returns are already higher than ours, thanks to their access to a wider range of hedge funds and investment vehicles.

Felix isn't happy about this: "What we don’t want is a world where most companies are owned by a small group of global plutocrats, living off the labor of the rest of us. Much better that as many Americans as possible share in the prosperity of the country as a whole by being able to invest in the stock market." Agreed — but like Felix, I don't have any bright solutions to this. And who knows? Maybe this is just the flavor of the day on Wall Street and the public stock market will make a comeback shortly. But the overall story of the past couple of decades has been the steady funneling of all the richest investment opportunities to a smaller and smaller class of the super rich, and this trend fits right in. It's a problem worth thinking about.

I'm basically a supporter of regulations limiting the amount that credit card companies can charge merchants in interchange fees. If there were real competition in the card market, I'd probably feel differently, but in reality there's an effective duopoly, and both members of that duopoly have conspired to require merchants to sign contracts that forbid them from engaging in price discrimination by charging more for credit card purchases if they want to. This has created a situation in which card companies and banks have an incentive to charge higher and higher fees, which are subsidized by everyone since everyone has to pay the same higher prices that merchants charge to cover the fees, and then rebate those fees to their most favored customers in the form of airline miles and other goodies. It's hardly the biggest outrage in the world, but it's still pretty ridiculous.

Now, I'm also a moderate supporter of teachers unions, and it turns out that the NEA is opposed to regulations limiting interchange fees. Matt Yglesias wonders if this changes my mind:

I don’t particularly think we should take the NEA’s word for it, but I wanted to call attention to this simply because I think confirmation bias is one of the biggest problems we have on the web. It occurs to me that several bloggers who I normally agree with but who had strong favorable views about the Durbin Amendment that contrasted with mine—Kevin Drum and Mike Konczal in particular—are also people who’ve really taken the lead in making the case that labor unions are a crucial “countervailing force” to advancing middle class economic interests. So I wonder if any of them are inclined to rethink their views of the swipe issue in light of this.

Hmmm. The NEA provides this explanation: "With educators and others of moderate income facing daily challenges to make ends meet, Congress and the Federal Reserve must tread lightly when considering proposals that could increase financial burdens on these families." And maybe so. But my first thought when I read this was, "Gee, I wonder if what they really care about are the interests of credit unions run for teachers?" Luckily, it turns out Mike Konczal had the exact same suspicion, which saves me the time of looking into it. You can read his thoughts here.

So for now, anyway, I haven't changed my mind. It's not as if I have to agree with every single stance ever taken by a labor union, after all. And as before, I stand ready to abandon regulations on interchange fees if card companies allow merchants to freely charge extra for card purchases if they want to. That would be the free market at work. Oddly enough, they don't seem very excited by that prospect.

The "One-Time" Trap

Should we institute a tax holiday on foreign earnings, a one-time deal that allows U.S. companies to bring home profits from their overseas operations at a low rate? Peter Coy and Jesse Drucker argue that it's a bad idea: we did it before in 2004, and companies all figured out that if it happened once, it would happen again. So they started piling up even more earnings overseas than before. Ezra Klein comments:

But if you read the piece, you’ll also realize that all the good arguments in the world might not be able to stop this bad idea from happening. There’s a lot of money riding on it, so there’s a lot of money behind it. “The pro-holiday coalition has quietly assembled an all-star lobbying and communications team,” report Coy and Drucker. The communications strategist is Anita Dunn, “who served as President Barack Obama’s interim communications director during his first year in office.” [Etc.]

Tax cuts for corporations and the rich always have a pretty good chance of passing, so this is hardly a surprise. But I have a question: I've read some seemingly persuasive arguments that taxing foreign earnings is a bad idea in the first place, and it's something that virtually no other rich country does. Here's a typical version of this argument from the CEO of Cisco:

The U.S. government's treatment of repatriated foreign earnings stands in marked contrast to the tax practices of almost every major developed economy, including Germany, Japan, the United Kingdom, France, Spain, Italy, Russia, Australia and Canada, to name a few. Companies headquartered in any of these countries can repatriate foreign earnings to their home countries at a tax rate of 0%-2%. That's because those countries realize that choking off foreign capital from their economies is decidedly against their national interests.

So how about it? Is there something to this, or is something important being left out? What's the liberal conventional wisdom here?

(Of course, in a more blue-sky vein, I'm in favor of phasing out the corporate income tax completely and replacing it with a carbon tax. That would be almost 100% beneficial to everyone, and yet, it will never happen. Strange, isn't it?)

UPDATE: Turns out Coy and Drucker addressed this issue in their piece. I shoulda clicked the link. Ezra sums it up here.

Cui Bono?

AT&T's proposed acquisition of T-Mobile would make AT&T about a third bigger than it is now. Here's my prediction about how this will play out if the deal goes through: within five years, the compensation of AT&T's CEO will grow to be about a third bigger than it is now.

There's no especially compelling reason this should happen, but it will regardless. Keep that in mind in the midst of the coming blizzard of explanations for why this particular consolidation is good for the industry, good for the consumer, good for shareholders, and, well, just plain good for America, dammit. Industry consolidation over the past 30 years has produced a smaller but much higher paid class of corporate executives, and this one will too.

Why did the 2009 stimulus package produce such meager results? Partly because the recession turned out to be worse than Obama's team thought, and partly because they didn't press for a big enough package even for the recession they thought we had. But another reason is that at the same time the feds were spending more money, state governments were cutting back. The chart below from CBPP tells the story. They have data for all but six states, and on average for 2012, "those 44 states plan to spend 9.4 percent less than their states spent before the recession, adjusted for inflation." That's not just less than last year, it's less than 2008. That wiped out nearly the entire effect of the federal stimulus package.

Griping About Libya

I'm not likely to blog very much about Libya, but I have to say there's an air of unreality surrounding a lot of the commentary that's starting to get on my nerves. Criticizing Obama for not consulting Congress is one thing. It's not as if this is some kind of unprecedented break with past practice or anything, but still. I get it.

But the "dithering" complaint? Give me a break. When did it suddenly become a personality defect to decline to intervene in a foreign rebellion the instant it broke out? Isn't there anyone left who appreciates the fact that Obama still retains a few shreds of anti-interventionist instinct and moves in a deliberate fashion?

Then there's the "why did he change his mind?" nonsense. Answer: because when events on the ground are moving fast, presidents change their minds. How? Usually by first holding a meeting and getting lots of input. Obama changed his mind last Tuesday in exactly the same way that every president since George Washington has changed his mind.

And then the "following, not leading" complaint. Look: if the only thing you actually care about is showing just how manly the United States can be, this makes sense. But that's a pretty stupid justification. There's just no reason why America should be required to take the leadership role in every military action around the globe.

Finally, there's all the handwringing over why we're intervening in Libya but not Bahrain or the Congo or Yemen. Please. Muammar Qaddafi is a terrorist and thug who's been on practically everyone's shit list around the world for decades. He has no allies, no friends, and not much firepower. Getting rid of him looks like a doable mission, and there's no one really opposed. Other places either don't look very doable or else their autocrats happen to be U.S. allies. Maybe that's not the most honorable reason in the world for leaving them alone, but it's a reason followed by pretty much every national leader since the first nomad planted a wheat field in Ur and settled down. We shouldn't act quite so wide-eyed and shocked that the United States does too.

Look: I'm not really happy about the intervention in Libya. Like a lot of people, I'd like to know what our actual goals are. What's more, I'm not sure it'll be the cakewalk that Hillary Clinton and Nicolas Sarkozy seem to think, and I believe that for a variety of reasons the United States is best served by not giving anyone an excuse for thinking that the current round of rebellions in the Middle East are backed by American power and interests. It's better for us to keep a pretty low profile right now.

But an awful lot of the criticism is just so unremittingly juvenile that I can hardly stand listening to it anymore. Time to grow up, people.

Greg Mankiw has a post up today linking to data from the Tax Foundation showing that the United States has a pretty progressive tax structure compared to other rich countries. Karl Smith has turned it into a chart and comments that "the US is more or less right on target." Rich people here are richer than in most other countries, but they also pay a bigger share of taxes than they do in most other countries. I have a few comments about this:

  • Using the "richest 10%" as your benchmark is misleading. America features not just lots of ordinary income inequality, it features lots of income inequality at the very tippy top of the income distribution. The real scandal of our tax system is that the top 1% and the top 0.1% make wildly more money than the top 10%, but they pay effective taxes at about the same rate. This chart doesn't capture that.
  • The chart includes only income and payroll taxes. But state and local taxes tend to be pretty regressive in the U.S. If you calculate the entire tax burden, you'll find that the American tax system is less progressive than this chart suggests. (See Figure 3 from the Tax Foundation here.)
  • That said, it's absolutely true that lots of other countries have only moderately progressive tax systems too. Most European countries raise far more in taxes than we do and fund a much greater range of social services, but they mostly do it with a combination of progressive income taxes, moderate taxes on capital, and fairly hefty VATs that are either regressive or flattish. Add it all up and the shape of their tax systems turns out to be fairly moderate.

If you put all this together and then reconstructed the chart, I think you'd find that most European countries do, in fact, have a somewhat more progressive tax structure than the U.S. But not by a lot. Roughly speaking, the social contract in Europe requires everyone who's non-poor to pay fairly heavy taxes, and then uses that money to fund broad social programs that are, themselves, quite progressive (a bus driver gets the same value from the French national healthcare system as a millionaire does). There is, it turns out, more than one way to skin the progressive cat, and you can do it on the spending side just as well as on the taxing side.

The American Academy of Pediatrics says children should stay in rear-facing car seats longer than we used to think:

Toddlers are usually switched from rear-facing to forward-facing car seats right after their first birthday — an event many parents may celebrate as a kind of milestone. But in a new policy statement, the nation’s leading pediatricians’ group says that is a year too soon.

....The academy’s previous policy, from 2002, said it was safest for infants and toddlers to ride facing the rear, and cited 12 months and 20 pounds as the minimum requirements for turning the car seat forward. But Ms. Baer, a certified child passenger safety technician, said parents tended to take that as a hard and fast rule.

“A lot of parents consider turning the car seat around as another developmental milestone that shows how brilliant and advanced their child is,” she said, “and they don’t realize that it’s making their child less safe.”

I don't have kids and my personality is kind of weird anyway, but I still have to ask: Really? Do parents really turn their kids around at age one because they think it shows how brilliant and advanced their child is?

Or do they do it because up until a few hours ago the American Academy of Pediatrics said it was OK to turn them around at age one? That actually seems more likely, doesn't it?

Stuart Staniford points out today that the pace of new wind power installations has cratered in the United States:

We need much more wind power. When wind power goes wrong, it kills the odd bird or maybe the occasional worker. Some people don't like the look of the towers. But we need power, and wind power doesn't destabilize the climate, and it doesn't irradiate hundreds of square miles of farmland. So this collapse in investment is terrible news.

I understand why the US congress and the Obama administration was not able to pass climate change legislation, but it's a terrible commentary on their energy/environmental policy that they weren't even able to maintain the pace of growth in wind installation.

What caused this? Wind projects have big capital requirements and long lead times, of course, so this could just be a delayed reaction from the 2008 financial crisis. If anybody out there can offer up a better explanation, I'm all ears.

I'm a longtime advocate of the position that, cases of clear self-defense aside, Congress should issue a declaration of war before the president commits combat troops overseas. At the same time, I recognize that this virtually never happens anymore. At best we get vaguely worded "authorizations of force," at worst we get nothing at all. Every president since Roosevelt, and most of them before him, have operated this way. So I'm not especially put out that President Obama failed to get congressional approval before committing the United States to support the no-fly zone over Libya. He's just acting the way every president in recent memory has acted. Matt Yglesias offers up this explanation for our current state of affairs:

The main reason congress tends, in practice, not to use this authority is that congress rarely wants to. Congressional Democrats didn’t block the “surge” in Iraq, congressional Republicans didn’t block the air war in Kosovo, etc. And for congress, it’s quite convenient to be able to duck these issues. Handling Libya this way means that those members of congress who want to go on cable and complain about the president’s conduct are free to do so, but those who don’t want to talk about Libya can say nothing or stay vague. Nobody’s forced to take a vote that may look bad in retrospect, and nobody in congress needs to take responsibility for the success or failure of the mission. If things work out well in Libya, John McCain will say he presciently urged the White House to act. If things work out poorly in Libya, McCain will say he consistently criticized the White House’s fecklessness. Nobody needs to face a binary “I endorse what Obama’s doing / I oppose what Obama’s doing” choice.

I think there's something to this, but it also strikes me as incomplete. After all, on domestic policy, the same dynamic applies: why not just let the president do what he wants so that you remain free to criticize him without ever taking a firm stand? But that's not what Congress does.

Rather, there are certain specific areas where Congress has deliberately given up its authority. Warmaking is one. Monetary policy is another. Detailed federal rulemaking is a third. Each has a different justification. In the case of war, the theory is that an active executive needs to act quickly, free of congressional dithering and endless committee hearings. In the case of monetary policy, the theory is that politics will inevitably get in the way of decent policy, so Congress should voluntarily restrain itself. In the case of rulemaking, the theory is that there are simply too many rules and it's impossible in practice for Congress to consider them all.

Each of these theories has problems. With very rare exceptions, there's enough time for Congress to consider a declaration of war. They've shown they can act within a day or two if a situation is especially urgent. In the case of monetary policy, Congress could easily provide more specific direction to the Fed even if they don't intervene in day-to-day open market operations. And Congress, if it wished, could insist that federal rules be bundled into packages and passed only after an up-or-down vote in the House and Senate, no amendments allowed.1

Proposals to reform this stuff come up now and again, but it never happens. The War Powers Act was the last time Congress tried to assert some authority in the area of warmaking, and its practical effect was negligible. There's occasionally talk of making the Fed more accountable, but it never goes anywhere. And there's frequently talk of changing the rulemaking process, but it also goes nowhere.

So why these three areas, plus a few others, but nothing else? Is it just inertia and tradition? Or is there something special about them? My vote is mostly for inertia and tradition. There's no really persuasive reason why Congress should have decided to abdicate its authority in these areas but not others, but they have. And once power is abdicated, it's rarely regained.

1There are legal obstacles to all of these things. However, as near as I can tell, they could mostly be overcome if Congress truly asserted itself.