Megan McArdle : The Atlantic

Envisioning a Post-Campus America

2012-02-13T17:16:54-05:00

MIT is going to offer certificates for completion of low-cost online coursework, an offering the university is calling MITx. Stephen Gordon ponders the implications:

Now, imagine a personnel manager at a mid-sized corporation who's looking for an employee with some particular knowledge. There are two candidates: one with an appropriate college degree from the local state school, a second with relevant MITx certificates. Let's say all other things between the candidates are equal. Which should the manager choose?

Given the caliber of professor at MIT, the online student may have learned just as much. The candidate who went to college probably enjoyed his experience more, but the potential employer is unlikely to care about that. Finally, there's the financial reality: To some extent, the student debt of the job candidate dictates his salary requirements. If the MITx candidate has the knowledge required and far less student debt, he probably can be hired more cheaply. Ultimately, the cheaper option will win.

I've seen a fair amount of speculation along these lines. I'm probably more skeptical than most of the boosters, however. When I was in business school, I saw opportunities for disruptive innovation everywhere--in autos, in groceries, in education. Since then, I've watched a lot of disruptive innovations get killed or co-opted by incumbents, or undermined by features of the market that weren't immediately obvious to an outside observer. (Why can't we just order perfectly customized cars online the way we do computers? Because dealers have a lot of political pull at the state and federal levels, and because the economics of auto plants make it hard to shut down or start up lines in order to follow demand.)

I can see all sorts of factors that might combine to preserve the status quo, from signaling and status and networking, to the desire of college students for a four-year debt-financed semi-vacation. On the other hand, disruption never looks inevitable until it suddenly is--if you'd told someone in 1955 that GM was going to have its lunch eaten by some Japanese upstart, they would have laughed until the tears came. So it's interesting and maybe even useful to contemplate what the college system would look like if this sort of distance learning becomes the norm.

1. Education will end up being dominated by a few huge incumbents. As we see with Facebook and Twitter and, well, almost everything, the internet offers huge returns to scale, and substantial network effects. There's a big benefit to having learned stuff the same way as the people around you--not least, that they understand what a given certificate means. To offer a small example, during my time at the University of Chicago's business school, every class was curved to a 3.25. Most other business schools don't curve, and as a result, Northwestern, our nearest competitor, had an average GPA of something like 3.8.

Someone at Chicago who had a 3.4 GPA was slightly better than average. Someone at Northwestern who had a 3.4 average was kind of a screwup. This didn't matter unless your interviewer had gone to a different school--but if they had, you were apt to find yourself explaining that no, really, that 3.5 wasn't as bad as it looked. Which sounded like whining, even to us.

I would expect that economies of scale and network effects would compress the number of schools to a few--or at least, a few within each specialty. The winners might be the early-moving incumbents like MIT and Stanford, or they might be some dark horse who takes advantage of the disruption to rearrange the current status hierarchy. But either way, I'd expect to see a few schools dominating, while many go out of business.

2. Online education will kill the liberal arts degree. Let's not have the same dismal discussion of whether liberal arts degrees are awesome or useless. The important aspect for this discussion is that what they teach is hard to test efficiently. There's enormous variation in grading of, say, English papers, and even if it were easier to standardize, that grading requires hours of expensive labor.

3. Professors (course developers) will be selected for teaching instead of research brilliance. The brilliant theorist who drones his way through two courses a year while his students fantasize about stabbing themselves in the eardrum with a plastic fork so they can't hear the boring anymore . . . that chap will have no place in the online future.

4. 95% of tenure-track professors will lose their jobs. Or perhaps I should say, 95% of tenure-track jobs will be eliminated; I have no idea if things could change fast enough to knock current professors out of work. But if online education really becomes ubiquitous, very few professors will be needed to produce all the education. Oh, don't get me wrong--at the school level, the workforce will still be enormous. Probably bigger than it is now, for the schools that win. But that will be offset by all the schools that close.

5. The corollary of #4 is the end of universities as research centers. As I've noted before, tenured academics has worked a great scam. They've managed to monetize peoples' affection for regional football teams, and their desire for a work credential, and then somehow diverted that money into paying academics to work on whatever they want, for the rest of their lives, without any oversight by the football fans or the employers. While I'm sensitive to the complaints of conservative critics, I think that by and large, it's a very good thing. But it's not a viable business model in cyberspace.

We might see much of academia revert to an amateur past-time, as it was in the 18th and even the 19th century. Work with policy implications would likely move to think tanks or consultancies; and I assume that a lot of basic science would continue to be funded by the government, perhaps renting out the labs of defunct universities. On the other hand, I'd assume that folks like English professors will have a very difficult time getting funded to do much of anything. And before the English professors attack, this is not a commentary on your value to society, just my personal assessment of where the bulk of the funding dollars seem to be.

To get funding in the e-future, research will have to be relevant. More specifically, it will have to strike someone with a lot of money at their disposal as relevant.

6. Young job-seekers will need new ways to signal diligence. I'd expect to see a lot of free labor in the early years, something like what aspiring writers and visual artists already do with their blogs. There will be more freelancing, more try-out employment, and more unpaid internships.

7. The economics of graduate school will change substantially. I'm not sure what would happen to the master's and professional degrees--would there be a market for intense, focused instruction in small class groups? Medical school yes, law school probably, social work . . . um, as long as the government requires it, I guess.

But the PhD would be radically upended. Right now, graduate students get miserly stipends in exchange for considerably easing the teaching and research loads of their professors. But in an online model, we won't need so many teachers. And the online schools will not necessarily be research centers any more.

The implication is that most students, especially outside of STEM, will have to pay for their PhDs. Which should, at the very least, take care of the oversupply problem.

8. Civil society will have to substitute for the intense friend networks that are built at college. I'm not sure what form this would take--college-age students joining the Elks?--but something will have to substitute. Or perhaps people won't separate from their high school friends as much as they do now.

9. The role of schooling in upward mobility will change. This is kind of a cop-out, because I'm not sure which way the change runs. I can tell a story where eUniversities make it radically easier for smart, poor kids to advance in their spare time. I can also tell a story where education is very complementary to the kind of personal networks and social capital that middle-class kids can tap through their parents. For poor kids who can get there (and stay there), college provides a lot of education on how to socialize with other college students, and of course, expert professionals who can help you find a job if you ask for help.

10. The young will have a much lower financial burden in their 20s. That's hopefully going to translate into more investment, and more risk-taking, which is great for everyone.

11. The tutoring industry will boom. While tenured professorships will go away, there will be lots of opportunity for those who can help an online student pull through a rough spot. (At least until computers learn to do this too).

12. If the credentials become valuable, cheating will be a problem. I'd expect online test-taking to eventually shift to test centers like the ones where the GMAT and various professional licensing exams are administered now.

Overall, I think it's very clear that people will have more opportunity to access education, but much less clear how that education will translate into opportunity, particularly for those who weren't born to successful, educated parents. And except for a few superstars, I think the shift would be unequivocally bad for tenured professors. The corollary, however, is that it would be unequivocally good for the legions who are lured into grad school by the chimera of a tenured professorship.

Would it be good for society as a whole? I tend to think that it almost always is when things get cheaper. But we will have to rethink how we fund important research, and quite possibly, about what the engines of mobility will be for strivers who start out in the bottom quintiles.

Will Pension Funds Shun Private Equity?

2012-02-13T12:44:04-05:00

BusinessWeek speculates that the attacks on Romney's work at Bain may cause pension funds to pull out of private equity deals:

With public scrutiny focused on private equity funds, pension funds are more reluctant to invest and may ask for more details on job creation and push for lower fees, according to officials and trustees at public pensions. "Pension funds have boards. They don't want to be giving money to an industry that has a taint," says Tony James, president of Blackstone Group (BX), the world's largest private equity firm. "Similarly, boards of directors don't want to sell their company to organizations they don't view as respectable. So it could be very damaging for the industry."

The debate comes as the industry is competing for a shrinking pool of investor dollars. Fundraising has fallen off sharply since the onset of the global financial crisis, staying below $100 billion each quarter, according to London-based researcher Preqin. In the second quarter of 2007, at the peak of the leveraged buyout boom, private equity firms raised almost $214 billion. In the fourth quarter of 2011, they raised $52.4 billion.

Public and private pension funds in the U.S. provide 42 percent of the capital for all private equity investments, according to the Private Equity Growth Capital Council in Washington.

If this happens, it will be good news. For years now, pension funds have been trying to make up for contribution deficits by chasing higher returns in hedge funds and private equity--especially state and local funds, which have been chronically underfunded by politicians who like to promise goodies, but not the taxes needed to pay for them.

Those higher returns are not cost-free; they come attached to higher risk. The last thing that you should be doing with someone's retirement is taking a high risk gamble in the hopes that you can compensate for undersaving. (Side note to retirees panicking over today's low asset returns: this goes double when it's your retirement.)

But for that very reason, color me skeptical that this will actually happen. Pension fund managers are trying to deal with underfunding in an environment where normal investments aren't offering much more return than stuffing the money inside your mattress. If high-minded refusal to touch tainted deals means you have to go back to the principals and demand another 1% of salary in contributions, I'm betting that the investment committee will be brainstorming reasons to love private equity faster than you can say Adjusted Funding Target Attainment Percentage.

New Drugs Cost Even More Than You Think

2012-02-10T16:26:02-05:00

The standard figure for drug discovery thrown around by the industry's most avid critics is the Light and Warburton estimate of roughly $43 million. Most serious analysts think that's way too low (I agree--their assumptions were bizarre, and their attempt to defend them in the comments to this Tim Noah piece is painful to read).

The industry, and its supporters, prefer Joseph DiMasi's figure of around $800 million. But critics point out that it was derived using confidential data, which can't be verified, and they are very critical of the method, which includes opportunity costs--the returns that pharmaceutical firms didn't earn by spending the money elsewhere.

Now along comes a new method, from Matthew Herper at Forbes. It uses only public, audited data, and it's breathtakingly simple: over a 15-year period, they divided each company's R&D spend by the number of drugs they got approved. The result: DiMasi is also way too low. For every approved drug, pharma spent between $4 billion and $11 billion on R&D. Yes, there's probably some wiggle room on the accounting, but not that much--your auditor is not going to let you reclassify your new delivery trucks, or a Human Resources SVP, as a research expense.

As Herper points out, this isn't necessarily a vindication of pharma--one could demand to know why they have to spend so much money to develop new drugs. Yes, I know, it's getting harder to find approvable new drugs, but the industry has been flailing for ten years, and so far, the only answer they have hit on seems to be "more layoffs!" Maybe they're just trapped in a bad place, but since the layoffs clearly aren't working, I sure hope they come up with something else.

Still, it's a useful corrective to the notion that pharma just wanders down to the university labs once a year to harvest the new drugs, then spends the rest of the year sitting back and idly watching the royalty checks pour in through the mail slot. Finding an approvable new drug is a long, expensive process that too often goes awry--and often, the rules we impose make things worse, and even tax policy. We should think about these numbers every time someone like Marcia Angell suggests that really, Big Pharma barely does anything. Unfortunately, Big Pharma is doing a lot, although not necessarily effectively as they could. Even more unfortunately, a dry pipeline hurts us at least as much as it hurts them.

Administration Backtracks on Birth Control, but at What Cost?

2012-02-10T15:46:05-05:00

It looks like the Obama administration is pretty much completely caving on the rule forcing religious organizations to provide free contraception coverage for employees at facilities with a secular purpose (hospitals, schools, etc.). The onus has been shifted to insurance companies, which will contact women separately and offer them the optional coverage, which they will pay for. The insurers aren't happy, of course, but they never are these days. The administration, meanwhile, is trying to spin this as a victory:

This is better for both sides, the source says, since the religious organizations do not have to deal with medical care to which they object, and women employees will not have to be dependent upon an organization strongly opposed to that care in order to obtain it.

After last week's Susan G. Komen firestorm, I will be very interested to see how this unfolds. I noted last week that if the Susan G. Komen foundation had just never given Planned Parenthood a grant in the first place, there might have been isolated complaints, but it's doubtful that it would have escalated to a PR fiasco. Taking the grants away, however, was a very different matter. That's in part because it's harder to explain--not giving it can be simply explained by saying that there were better candidates for limited funds, but taking it away once you've given it demands an explanation of what changed. Susan G. Komen didn't have a good one--"changing sentiment about abortion" wasn't going to win them any friends--and the explanation they offered was fairly transparently an excuse.

But it's also because people react to losses differently from potential gains. If you don't give someone a raise, maybe they're mad. But it's nothing compared to the fury you will trigger if you try to cut their pay.

I suspect that the Obama administration may find itself with the same problem. Had they simply allowed religious groups an out in the first place, you would have heard some muttering from women's groups. But they told women's groups that they were going to make the Catholic Church pay for free birth control--handing them a pretty major victory in a long-running battle. Supporters of this decision have been vehemently defending it for a week, investing them even more heavily in the outcome. Now the administration has done a 180. It would be pretty understandable if they took this as a betrayal.

Of course, women's groups (and feminists more generally) have a lot of other reasons to support the Obama administration; they may decide to give him a pass for the greater good. On the other hand, before the last week, I would have said something about the Susan G. Komen Foundation.

Update: Commenters point out that I've misread it--the insurers have to provide it "at no cost". Which of course means the Church will still be paying for it. So the question is, how do the Catholics take it? Not well, from what I can see.

What Happened at MF Global?

2012-02-10T15:37:18-05:00

We still don't really know what happened at MF Global, but Reuters is reporting that--much to the surprise of many involved--there is so far not much evidence of criminality.

Lawyers and people familiar with the MF Global investigation of the firm that was run by former Goldman Sachs head Jon Corzine say that even though the hunt is still on to find out whether or not officials at MF Global intended to pilfer customer money in a desperate bid to keep the brokerage from failing, the trail at this point is growing cold.

To date, scant evidence of criminal intent has emerged in company emails, no former or current employees have sought to cut a deal to provide testimony about potential wrongdoing and seasoned defense lawyers say they are not seeing the tell-tale signs of a hot criminal investigation.

A source familiar with the work of Louis Freeh, trustee for the MF Global holding company that filed for Chapter 11 bankruptcy protection, says investigators have yet to find evidence of fraud in the multi-faceted and complex investigation.

The source, who declined to be identified because Freeh's office is still conducting its inquiry, says there was plenty of "chaos" at MF Global in its waning days, but "no evidence of fraud." Freeh is a former Director of the Federal Bureau of Investigation.

I don't understand how this could be true. To be clear, I am not saying that it couldn't be true--only that I don't understand how such a thing could have happened. There is more than a billion dollars missing from supposedly segregated client accounts. I understand that it was chaotic, but what kind of chaos causes you to accidentally move money out of money that any moderately sophisticated compliance system should have automatically flagged for approval?

Coffee Talk

2012-02-10T08:36:16-05:00

The history of Ireland in 100 excuses:

34. Come all ye young rebels, and list while I sing/For the love of one's country is a terrible thing/It banishes fear with the speed of a flame/And it makes us all part of the patriot game.

35. He must have got it from his father's side - it couldn't have been from us.

36. "Your health!"

37. "Cheers!"

38. "Sláinte!"

39. "Is it your round or mine?"

40. "Last orders!"

41. "I suppose we might as well have one for the road, so."

42. Ah, you're drunk you're drunk, you silly oul fool, still you cannot see/That's a lovely sow that me mother sent to me.

43 - 48. See 42, excuses relating to drunken nights two to seven, inclusive.

"It was strictly a Tuba raid"

You'd think that brutal dictatorships would be better at network security:

The attack took place overnight Sunday and the target was the mail server of the Syrian Ministry of Presidential Affairs. Some 78 inboxes of Assad's aides and advisers were hacked and the password that some used was "12345". Among those whose email was exposed were the Minister of Presidential Affairs Mansour Fadlallah Azzam and Assad's media adviser, Bouthaina Shaaban.

Greek deal: still not actually a deal

The finance ministers' new demands proved too much for George Karatzaferis, head of the LAOS party - a far-right minority member of the unity government. "I explained to the other political leaders that I cannot vote for this loan agreement," Mr Karatzaferis told a news conference on Friday afternoon.

Will Inequality Keep Getting Worse?

2012-02-09T14:28:55-05:00

Last October, after a conversation with Chicago Booth professor Steve Kaplan, I posted this graph showing that the share of national income going to the top 1% had fallen dramatically.

This confirmed what I had expected--the taxable income of the wealthy generally tends to fall in recessions. But since earlier census data had seemingly contradicted that expectation, I thought it was worth blogging. As I explained:

The larger question is "how much does it matter"? I doubt Occupy Wall Street will be assuaged by learning that the top 0.1% now only receive 8% of the income earned in the US, even if that number is the lowest it's been since 2003.

But I think it does matter. If we think there's a real problem, we need the best possible data so that we can understand its contours. Income inequality has been rising for so long that people have started to assume that it has just kept rising, even when the data show otherwise. We don't want to spend years focused on income inequality, only to learn that the financial crisis fixed it for us.

Tim Noah, who I believe is working on a book about the growing problem of inequality, shot back:

No, we don't. Nor do we want to spend years trying to cure cancer, only to learn that the financial crisis fixed it for us. The likelihood of that happening would be roughly the same.

. . . Barring major changes in government policy (changes I would welcome even at the expense of book sales!) I see no reason to believe that the 32-year trend in income inequality will end anytime soon, and every reason to believe the precise opposite: It will get worse.

It was a witty enough retort to something I hadn't really said (he clipped the first paragraph). I never got around to responding, though I meant to, and there, I guess I just did.

But the reason I bring it up now is that it did get me thinking: how likely is inequality to simply keep getting worse? It's a question that came back to mind when I saw this post from the Tax Foundation showing that inequality is now back to roughly where it stood at the beginning of Clinton's second term (via TaxProf):

But as I mentioned in this post (and the original), this may well only be temporary. The financial crisis destroyed a lot of wealth. Maybe we're just in another cyclical downturn that will, as Noah thinks, soon give way to the inexorable underlying trend.

What are the reasons to think that we might actually be witnessing a permanent change--a flattening of the trend, or even a reversal? Some possibilities:

If something can't go on forever, it won't. Trends like this come to seem inevitable because they have been going on for a long time--but since inequality cannot actually rise until the 1% own everything in the world while the rest of us suck on wood chips, the longer inequality has been growing, the closer that trend must be to slowing, or reversing. So the more you feel that inequality growth is a state of nature, the less likely this is to actually be true. And even very smart, knowledgeable people who have read a lot have an abysmal record at forecasting these things. Look at Karl Marx, the intellectual grandfather of mindless trend extrapolation bolstered by entirely plausible theoretical mechanisms.

2008 was a major discontinuous event. Earlier recessions wiped out a sizeable chunk of income potential that later recovered, but they didn't fundamentally reorganize markets and institutions the way that 2008 did. The last time that happened was 1929, which was followed by decades of declining income inequality.

Of course, that doesn't mean that 1929 predicts our future, either; the Great Depression was worse and deeper than what we're going through, the regulatory response was more sweeping, and of course, there was that little spot of bother in Europe during the 1940s. The point is only that 1929 is probably a better parallel for comparison than 1987 . . . which really just means that we're in uncharted territory.

Both regulatory and public opinion has turned on the banking industry. No, we didn't gut the bankers and hang their heads on pikes outside the offices of the SEC. But the new regulatory environment, with less leverage and more poking around in the company books, is going to make it harder to make money for many financial types. Even if you think that it should be made harder still, I think you have to acknowledge that things like Dodd-Frank should put some downward pressure on future bank profits.

Markets are getting more efficient all the time By this, I don't mean that they approach some platonically true price. I mean that they trade away relatively "free" opportunities to make money, by say, exploiting differences in the price of the same asset in different markets. A few years ago, when I went to Warren Buffett's annual meeting, I talked with a lot of value investors who said that the proliferation of stock screening tools had made it much harder to find the sort of stock bargains that had driven Buffett's early success; if anything was conspicuously undervalued, other investors quickly found it and drove the price up. That means you have to work harder (and pay more) to make wealth multiply itself.

The long secular rise in asset prices is over. A number of factors have been driving up asset prices over (broadly) the last thirty years. Baby boomers poured more of their savings into the stock market than their parents, aided by looser regulation and cheap mutual funds. Falling inflation, and then falling interest rates, boosted the price of bonds, meaning that bondholders got to enjoy healthy capital appreciation along with their coupon payments. Foreign capital poured into US markets looking for high and stable returns. All these things inflated asset prices, which now have nowhere to go but flat or down. Ordinary savers are seeing virtually zero returns, and it's not all that much better for rich people. Ultimately, asset growth cannot permanently outstrip the growth in the underlying cash flows. Just look at the P/E ratio of the S&P--still near the high end of its historical average, even after the greatest financial crisis since the Great Depression. That's not because corporate profits are growing so fast--corporate profits are the denominator. It's because people are paying a high price for securities.
Globalization faces a lot of challenges. China's having some growing pains, protectionism has grown noticeably over the last decade, and institutions like the EU are in near-meltdown. I have a lot of issues with the "trade immiserates the poor" story, but globalization has certainly helped boost the income of the small cosmopolitan class that is well positioned to take advantage of its opportunities.

Many of the other stomping grounds of the 1% are also changing. Doctors are under reimbursement pressure from both private insurance, and governments. Firms are looking for ways to replace those armies of expensive lawyers that help boost partner salaries. Professional athletes (and sports teams) got an enormous income boost from the proliferation of national broadcasting, but that trend is mostly played out. Real estate development--well, 'nuf said. How many Facebook IPOs would it take to replace a permanent decline in surgery reimbursements?

Of course, we should also consider the reasons the trend might continue. Globalization is still expanding. The new economy still delivers a wage premium to people who are good at gathering and analyzing information, which is not everyone's strength. Prolonged unemployment destroys human capital, and has been most prevalent at the bottom. If you believe that rich people have wormed their way into the political system and used it to redirect wealth to themselves . . . well, I haven't noticed any deworming.

And there's the simple fact that, in the short term, mindless trend extrapolation is a pretty good predictive model--assuming that growth, inflation, unemployment, etc will look about the same next quarter as they do this quarter is as good a forecasting method as anything else.

Of course, right now, that would lead us to predict that inequality would keep falling. Maybe. There's a lag in the data, so we don't actually know what it looks like now, only two years ago.

I think the answer at the moment is that we simply don't know--I'm not sure there's empirical reason to prefer one story or the other. I do think that we should be wary of confident extrapolations in either direction.

Should We Restrict Food Stamps to Healthy Food?

2012-02-09T10:14:45-05:00

Kevin Drum reacts to a bill which aims to limit the stuff that welfare recipients can buy with their food stamps:

What a dilemma. On the one hand, this bill promotes the exact same nanny-state behavior that Republicans howl about when Michelle Obama or Michael Bloomberg starts nattering on about salt consumption or fatty foods. On the other hand, it punishes welfare recipients, something that's always good for a round of applause from right-wing audiences. What's a conscientious conservative to do?

This doesn't seem like much of a dilemma, unless you think that favoring drug legalization, and selling heroin, are morally equivalent.

Not, mind you, that I mean to imply that fatty foods are just like heroin. But it doesn't seem like some sort of crazy stretch to believe that

1) People should be free to buy fattening foods without government interference

2) The government shouldn't necessarily pay for those foods.

Myself, I think this sort of nannying is mostly pointless; if you want to help the poor, give them cash, and if you don't, then leave them alone. But if we are going to have a food stamp program, that implies exclusions--things like laundry soap are already verboten from the program. It's not especially crazy to put unhealthy food on the excluded list.

(Graph via Adam Ozimek)

Battle Over California Medicaid Reimbursement Is a Preview of Our Future

2012-02-09T09:09:01-05:00

Adventures in health care reform, via the Angry Pharmacist, who is very angry, and a wee bit profane:

Usual reimbursement from MediCal is our drug cost (give or take a few percent to account for wholesaler markups, etc) plus a dispensing fee of a single digit number (less than 10 bucks for those drunk at home). If I dispense, say, Fukitol, with a ballpark (yet entirely reasonable) price of $200, I can expect to make about $210 bucks. Those slow out there may be saying "HOLY SHIT, YOU GOT $210 BUCKS FOR THAT PRESCRIPTION! PHARMACY IS A GOLD MINE!" For those who think this, go work for the State of California, because you are a fucking retard. Yes, we did get reimbursed by the state a whopping $210 dollars, but unless I can wave a magic wand and make drugs out of thin air, my wholesaler wants $200 out of that $210 so he can pay HIS bills. So I get $10, which really is fucking good.

So California; despite having Silicon Valley, Google, dot.millionaire companies, San Francisco and LA (that combined pay more taxes in one second than we will all make in a lifetime) is broke. Go fucking figure. They decide to whack the MediCal reimbursement for drugs by 10% to stem the bleeding of throwing the baby out with the bath water. This first was voted into effect on June 1st. Us pharmacy and medicine peeps said "HOLY SHIT, YOU CANT DO THIS" and did what Americans typically do, tie it up in the courts (read on and you'll see why). Well, recently they lost the injunction, so the cuts happened.

Now you may be thinking "gee TAP, 10% cut in your fee isn't so bad, thats only like a buck". Therein lies the problem. MediCal didn't cut our dispensing fee, they cut THE WHOLE FUCKING REIMBURSEMENT.

Quick and Dirty:

Drug costs 200 bucks. We get paid 210 bucks. Take 10% off of that 210 bucks and you're left with 190 bucks. The drug still fucking costs the pharmacy 200 bucks. We make a whopping -10 dollars. Thats right, the pharmacy LOSES 10 dollars (in this case) with EACH FUCKING HIGH DOLLAR TRADE NAME FILL. Throw in some chemo drugs like Xeloda that costs the pharmacy THOUSANDS or HIV drugs at 600 bucks each, and you have yourself a closed pharmacy.

It is, of course, absolutely true that you can save a great deal of money by forcing providers to sell things below their cost of goods. It is not necessarily true that this is a sustainable long-term strategy.

The cuts have been temporarily blocked by a federal judge on the grounds that they endanger access to care.

I hardly need to point out that we can expect a lot more stories like this one in the future. Reimbursements currently have some give in them, which allows the highest-cost providers to operate, and the lowest-cost providers to make some profit. The natural political tendency is to squeeze reimbursements to the level where the lowest-cost providers are pinched--or even beyond. And the best-case result of this is that in the long-run, the lowest-cost providers get bigger, while in the short term, the disruptions among the higher-cost providers compromise at least some patients' access to care.

Are we willing to put up with that short term disruption? Not so far, unless the service exclusively benefits the very poor. Maybe we'll get more willing as the tax bite goes deeper. But either way, with a dramatic Medicaid expansion on its way, and more and more of the rest of the health care system under the control of the government, the fights are going to get uglier.

Coffee Talk

2012-02-09T08:25:36-05:00

It's far better to discover important truths that never leave the Ivory Tower than propagate errors that take the world by storm.

Still no deal in Greece. A twitter correspondent suggests that maybe the Troika now think markets are strong enough to just let Greece go, and I'm starting to wonder if he's right:

A meeting among Greek Prime Minister Lucas Papademos, the parties supporting his coalition, and New Democracy, the opposition conservative party, broke up early Thursday morning without an agreement on economic overhauls sought by the European Union and the International Monetary Fund in exchange for lending an additional €130 billion ($170 billion) to the Greek government.

A single issue was the sticking point: cuts in the Greek pension system. Mr. Papademos said after the meeting that the parties would continue to discuss the issue with EU and IMF officials, aiming to reach a final deal ahead of a meeting of euro-zone finance ministers Thursday evening in Brussels.

Our national love affair with a hunk of stone:

A couple walks into a house, in any city, on any HGTV show.

This house has four bedrooms and three bathrooms, the real estate agent tells them. It has a fenced-in back yard, lots of light, a good school district, a new furnace. It comes with a unicorn.

This house -- she thinks they're ready to hear this news -- this house will make them lose 15 pounds from their thighs.

Does it have granite countertops? the husband asks.

No.

Well, then.

A lot of things are correlated with income mobility

Which should we use to predict future social mobility in America: current inequality, projected size of population, projected export / import structure, or projected mix of religious affiliations? Surely all of these, and many more, are potentially relevant.

The difficulty of talking calmly about obesity:

The debate ended with a sensational closing-statement arms race. It began when John Stossel brandished the directions for a package of birth control pills and groused about how complicated they were, thanks to federal regulations. Then David Satcher conjured the ghost of a racist South to show that he was no stranger to government corruption. ("I've seen government at its worst, but I've also seen government at its best,'" he concluded.) Next, Paul Campos likened the pathologizing of erectile dysfunction--a natural symptom of being 50 years old, he said--to the pharmaceutical-company-fueled belief that obesity is a disease. Not to be outdone, Pamela Peeke used her two-minute closing statement to recount a story about being chased by feral dogs in a poor neighborhood, ostensibly because it showed that it's not always safe to exercise outside.

Making Money Stretch: The Semi-Renovation

2012-02-08T14:14:59-05:00

Last year, we bought a house for two main reasons: we were sick of moving, and I wanted a better kitchen. We were living in a flip house that had been designed by a contractor with a rather spotty work ethic, and some very strange ideas about what makes for gracious living. (Wine fridge in the kitchen--and less than three feet of total counter space. Two jacuzzi tubs--and a hot water heater the size of a thimble. Frightful things going on in the walls, which were revealed when the house flooded, and we had to move out.)

Any long time reader knows that for me, a good kitchen is important. And while we'd reached a sort of uneasy truce with the flip house, by dint of purchasing a kitchen cart and an island to supplement its storage, our wedding basically shattered that fragile peace. Even before we'd sent out the invitations, casseroles and platters were pouring through the breach in our defensive lines and setting up forward positions on the book shelf that divided the dining area from the living room. By the time of our wedding, the entire downstairs had been overrun, and it seemed to me that the soup bowls were eyeing the stairway with a thoughtful air.

So we started looking at row houses. The husband wanted central air and habitability. I wanted something as lightly renovated as possible; I had no intention of paying for some contractor's builder-grade kluges, and then ripping them out when they broke. Three weeks after we got married, and one week before we were flooded out of the flip house, we found the house we wanted to buy. It had central air. It did not have four feet of ikea cabinets and cheap stainless steel fixtures. It had gorgeous ten foot ceilings. And . . . well, a very odd mix of other improvements.

It transpired that the previous owners had purchased a wreck, and then begun renovating it, only to be transferred overseas in mid-renovation. Their taste ran to very dark walls and very lazy contractors (though to be fair, they may not have been here when much of it happened). Paint was slopped all over the trim, which was itself shoddily applied--when we finally painted the cave-like grey hallway, the painter's tape took the single layer of white paint off the doorjambs in large chunks.

Thankfully, our inspector assured us that aside from one bright laddie who'd decided to cut a 4 inch chunk out of one of our floor joists in order to run some wires through, the basic work like plumbing and heating was in pretty good shape. But the rest ran from "adequate" to "hot mess".

There were some semi-high end fixtures, like a higher end washer/dryer combo, a decent gas stove, and a claw-foot tub. There was some remarkably low-quality work: the aforementioned paint; vents without covers, a toilet in the half bath that wasn't really attached to anything.

There was the stuff that hadn't been worked on at all: a front yard with a crooked fence and about 70 pounds of lava rock; a back yard that is better not spoken of, except to say that the only thing wanting to complete the look is a rusted-out pickup truck on blocks.

And there was the stuff that had clearly been slapped in at the last minute when they figured out that they were moving: a few scrawny kitchen cabinets, a foot or so worth of laminate countertops that were already peeling, one miserly drawer too small for a full-sized cutlery organizer, and a refrigerator just a half-step up from the ones we used to keep in dorm rooms. It barely came up to my chest.

We--okay, well, I--longed for one of those lovely kitchens you see on television or in nicer homes--acres of cabinetry and counter, broom closets and drawers and six-burner stoves with hoods that actually vent smoke, rather than swirling it more briskly around the kitchen. However, being journalists and newlyweds, rather than 55-year old hedge fund managers, we were not exactly overburdened with the necessary.

And really, it wasn't the worst kitchen in the world. There are starving people in Africa, and for that matter, affluent people in Peoria, making do with less space and storage.

So we coped with the shortcomings. The day we moved in, friends helped us install Ikea Grundtal shelves and rails, which double as potracks. We also installed our assortment of extra kitchen islands.

Over the next few months, we did a few things that we (almost) had to do--the dishwasher broke the day we moved in, and since the appliance store offered us a decent discount, we replaced the too-tiny fridge as well. But mostly, we ignored the shortcomings. The only sizeable change we made was when our contractor came to reinforce those improperly cut joists; while he was there, we had him move the laundry downstairs, and rip out the sloppily-built laundry-cave that had been installed just off the kitchen. This didn't look very good--naturally, they'd installed the washer-dryer first, and painted only up to the edge. But with a couple of bookshelves added, it at least gave us some extra storage. And the change alleviated the funereal effect of a dark grey wall jutting out into our hallway, blocking off a great deal of light.

We also had him run a water line for our fancy new fridge. For the first time in my life, I enjoyed the convenience and ease of Door Ice.

But after that, I declared that I was done. Unless something broke, we would put no more money into the kitchen until that distant day when we had actually saved enough money to renovate. That's where we stood in January of this year. Then our dishwasher tried to kill me, and I decided that maybe we should Do Something about the kitchen after all.

It was the day after New Year's, and the dishwasher was very full. Also, my arm was very sore, due to some unspecific, slow-healing rotator cuff injury that had been exacerbated in the frenzy of getting ready for the previous night's dinner party. I sleepily stumbled into the kitchen and opened the dishwasher so that I could unload it and put the rest of the dishes in.

Unfortunately, as they'd informed us when they installed the dishwasher, our counters weren't level, which meant that one screw holding in the appliance was under more strain than the other. Sometime in the winter of 2011, it had ripped out of the cheap laminate, at which point its colleague decided to go on strike too. Every time we opened the dishwasher, it tilted towards you, and the racks slid forward.

Perhaps sensing my languor, on New Year's Day 2012, the racks decided that the time had come to finally make their break for freedom. Just in time, I threw my aching left arm in front of the drawers, and stopped them from leaping across the floor with all our good china inside.

I also nearly stopped my heart--I haven't felt such a sharp burst of pain since I ripped up a bunch of ligaments getting thrown into a fence by a horse. I must have emitted some interesting noises, since my husband, normally a late sleeper, came trotting downstairs.

"[Expletive deleted]" I said calmly. "We're replacing this [bleeping] counter or I will [censored]."

But replacing the counter had Implications. If we were taking it out, we might as well replace the annoying black sink that was impossible to clean, and put in a backsplash so that I didn't have to spend so many happy weekend hours furiously rubbing our walls with a Mr. Clean Magic Eraser. And since we didn't want to install anything fancy in a kitchen that we eventually want to get rid of--I adhere to the principle that one should either buy expensive things that will be loved forever, or cheap things you won't feel bad about throwing away--the counters we could afford probably wouldn't match the cabinets, which meant they might have to be painted.

However, my steely resolve did not extend to tapping our emergency fund, or borrowing money. And even if it had . . . well, the Official Blog Husband is himself a man of formidable will. Which left us a quandary: how to do a minimalist kitchen renovation that would give us more storage, without costing more than we could cash flow?

The answer, for those of you who are interested, is below the jump: how to do a semi-renovation for a few thousand dollars that adds space and makes the thing look sort of all right. It wasn't exactly cheap, but it wasn't entirely out of reach of the average family, either.

I don't want to overpromise. This is not one of those $2,000 HGTV specials where, by the magic of not paying for labor, a couple gets a new-looking kitchen for practically no money. No one is going to walk into our kitchen and ask for the name of our designer. But it's functional enough to contain me, my mother, and my sister all cooking at the same time, without bumping into each other, or piling every flat surface high with used bowls and pans. We have enough storage for everything. And it looks . . . basically okay. Intentional, even.

If you're still interested, read on . . .

To start with, you'll want to know what our kitchen looked like. Unfortunately, I didn't think to write this blog post until we'd already started the renovation, and the people who sold our house quite wisely did not include photos of the kitchen in the listing. To the right is the only photo of the area they did include, of our dark grey laundry cave. I assure you, it was even darker looking when you were actually standing in front of it.

Note the quality paint job ending just where the washer-dryer start. And yes, before you ask, there's still a little paint on the washer-dryer.

However, just after they took off the cabinet doors, I got into a discussion with a commenter about renovations, and I remembered that some of my readers really like kitchen posts. So I hastened to the kitchen and took a few pictures before they went any further. Below, what our kitchen basically looked like, except with some of the doors removed.

This is also essentially what the kitchen looked like when we moved in, except, as I mentioned, with doors on the cabinets. And the dishwasher that we had to replace because it leaked all over the kitchen the first time we used it.

This is the view from the other direction. Unfortunately, you cannot see the edges peeling off the laminate, but you can see where the improperly attached filler panel next to the stove came off, leaving us with a darling hole:

On the other side of the kitchen, there was nothing but the tiny refrigerator, which the husband and I referred to as the "My First Fridge". Oh, and a garbage can. We kept the garbage can. The refrigerator had to go . . . although, before it went, it did give us hours of enjoyment arguing whether it was the largest dorm fridge on the market, or the absolute smallest regular model.

By the time we decided to semi-renovate, we'd already ripped out the laundry cave and stuck some mismatched bookshelves in that area. And on the empty side of the kitchen, we'd put in our carts: a large island from Target, an unfinished Catskill Craftsman kitchen cart, and a little unfinished cart from Ikea were all there when the above picture was taken. It was eventually supplemented with some plastic drawers that we'd had in the old house. The plastic drawers stuck, and looked awful. I'm not very sorry that I don't have any pictures of them.

A few months after we moved in, the new fridge arrived. This is how things stood until the semi-renovation.

As with so many things in modern homemaking, our semi-renovation started with a trip to Ikea. We investigated fixed cabinets for the laundry area, which would have been nice, but cost at least $2000, including installation. My heart said yes, yes. The little personal finance guru who lives in my head reluctantly vetoed the expenditure. Husband quite sensibly sided with the personal finance guru.

Instead, we bought paint for the hallway, a freestanding cabinet, and shelves to make a sort of butler's pantry. We also bought yet another unfinished kitchen island/counter, and a $99 set of silver-and-plastic drawers to replace the sticky plastic set next to the refrigerator.

While we were there, we priced sinks and countertops. We easily agreed on wood counters, both because we like them, and because our handyman could cut and install them himself. But we didn't buy until he could come by and give us an estimate.

Meanwhile, we painted the hallway and spent about seventy hours building our drawers, and our freestanding cabinet. The result was not perfect--the drawers are not quite flush. But it looks much nicer than the laundry cave.

We put all the serving dishes that we use every day out here, as well as our "set and forget" appliances. The prep areas are in the kitchen.

Then we got the greenlight from the handyman for the larger project. Back to Ikea we went!

We had decided on birch counters, to match all our unfinished wood. Bad news: lots of people are apparently attracted to the low cost and convenience of Ikea wood counters; almost everything was backordered. They only had oak, and only in one length: enormous. We had to purchase $350 worth of counters, instead of the $200 we'd been expecting. Also, the oak was going to look decidedly weird with our maple cabinets, so we'd have to paint the cabinets white.

The sink also added unexpected expense. We decided on a nice white farmhouse model that was wide and long, but there was a little problem--it only had one hole, and you couldn't drill another. We either needed a new faucet that combined taps and sprayer, or we had to give up the sprayer. Luckily, the husband found a nice model on deep discount--chrome apparently having gone out of fashion, they were selling it for a fraction of the price of the same model in brushed steel.

We chose subway tile for the backsplash, not even because it's cheap, but because that's what I grew up with. But happily, it's also quite cheap.

When our handyman removed the counter, we got a big surprise. Now we found out why the counters weren't level: whoever did our kitchen had used a wall cabinet on the floor. It was substantially shorter than the sink cabinet, so the counter sloped. It wasn't even attached to anything.

I assume they bought these surplus. I'd love to see the kitchen someone was remodeling with two corner wall cabinets, and only two floor cabinets.

Our handyman shimmed up the cabinet to level with the others, and built a sort of bracket to attach it to the wall. And he put in a brace for the dishwasher to attach to, pictured below.

After that he installed the counters, the sink, and the backsplash, and painted the cabinets. We stained the counters ourselves, since that's about the only thing I know how to do around the house, besides assemble Ikea furniture. We chose a darker oil-based stain that complemented the oak nicely, and finished with high gloss polyurethane--about 70 coats, if I recall correctly. It's easy to keep clean, and I can always slap another coat on from time to time.

Here's what it looked like when we finished the last layer of poly:

And here it is in working order. The whole kitchen seems much brighter with white cabinets, an effect I had not anticipated.

Another effect I wasn't anticipating was how this would make the other side of the kitchen look. We had four islands, made of different woods: the cart was birch, the two Ikea pieces were unfinished pine, and the Target island was some sort of eco-friendly tropical wood that was solidly finished. The collection looked even more motley next to this. We tried putting a left-over length of counter atop the Target island, but it didn't help much.

The solution was obvious: sand and stain. But sanding and staining a bunch of furniture is a very different job from doing a flat countertop; it's time-consuming, fiddly, and tedious. We dithered. I averted my eyes from the sight. Then we bit the bullet, with a small compromise: we let the finished piece alone, and just left the extra counter on top. Since we're both tall, the extra height was actually a plus. Added bonus: the extra length covered our previously exposed garbage can.

Do you own a detail sander? Because we own a little detail sander, and I'd never realized before this how much I love that thing. I'm not saying I'd leave my husband for a detail sander, or anything. I'm just saying that I'm very glad I don't have to choose.

Because the wood of the cabinets was lighter than the oak, we had to do a pre-stain with something close to the oak before we layered the color ("English Chestnut") on top. I knew it wouldn't be perfect--and it was even more imperfect than I expected, as I discovered that the body of our kitchen cart was an undistinguished pine. This was a fun opportunity for me to learn what happens to pine when you don't use a filler before you apply the stain.

I'm telling people that it's a tiger stripe pattern, and implying that it was deliberate. The whole thing has a sort of rustic air, if "rustic" is a code word for "people who aren't very good at applying stain."

Nonetheless, it does look more pulled together, even as if someone might have almost planned it that way. Here's the final result, as best as I can photograph in a relatively constrained space:

I spent about ten minutes the first night just opening and closing the dishwasher door, and relishing the way it did not tip forward and try to kill me.

The coffee maker moved to the left of the fridge. As you can see, our kitchen is optimized for tall people; my husband and I, both 6'2, can just reach to get stuff on and off that top shelf. My mother has to use a step stool.

We have our glasses in the top drawer of that drawer unit. Door ice has never been more convenient!

The other side of the fridge. The toaster oven has moved to replace the coffee maker Yes, I have a lot of pans:

It doesn't pay to look out the window. We haven't gotten around to the yard yet. And since broken glass is still working its way out of the ground after a year and a half of conscientious removal efforts, we probably won't get around to the yard until we can get someone to bring a backhoe--or at least a bobcat--in to dig out forty years and several college students worth of neglect.

Like I say, it will never be on HGTV. But we're very fond.

Overall, we saved hundreds of dollars by doing the work that we could ourselves. But we saved even more by compromising, and accepting that it was not going to look like a showplace. Open shelving instead of cabinets; a lot of stuff that doesn't quite match, and an aesthetic that leans towards functional rather than elegant.

That's not for everyone. I like having things in the open where I can reach them, but it takes a lot of work to keep it looking neat--work which, as you can see from my jumble of pans, we have not entirely completed. Finished wood surfaces do not stand abuse as well as granite, or even Corian. (Though I'll put them up against porous stone like Carrara marble any day). And we're well aware that the paint on the cabinets will probably scratch, and need to be touched up.

But lots of people could do some variant of this: upgrading or installing a few items, rather than re-doing the whole thing. The kind of kitchen renovation we would still frankly love to have would have cost us tens of thousands of dollars and involved moving our badly-placed and too-large half-bath. Not including the appliances, which we would have had to replace anyway, this cost us a few thousand dollars, even with labor included, and I expect to be happy with it for years. And if we needed to sell for any reason, I'm confident that we'll more than recover the money we spent. (I mean, after we move out my crazy array of appliances and pots and kitchen islands. I'm well aware that my taste in such things is somewhat, um, singular.)

Unfortunately, they never show you things like this on television. Instead they show you what you can get with $2,000 if someone throws in tens of thousands of dollars worth of contractor labor for free. I suppose that's fine if you're a swell all-purpose handyman, but most of us aren't. Nor, in this fast-paced world, can we necessarily learn in time to corral our rebel appliances and save our walls.

So I thought it was worth offering this as an alternative to house-porn. Call it house-PG-13: something that should be accessible to most people, provided they are properly chaperoned by a good handyman. No one is going to catch their breath in admiration when they walk into a kitchen like this. But hopefully, that will just leave more admiration available for the food you produce in it.

Coffee Talk

2012-02-08T08:40:02-05:00

Private equity in the doldrums, and that may be a good thing:

The mathematics of buyouts, for one, are not favorable. If a sponsor has to kick in 40% to 50% equity on a deal, it's going to be harder to earn huge returns. So financial sponsors have to be a lot more selective. In this climate, they have to make their money the old fashioned way -- improving a company's operations and growing it faster than its industry peers. That growth and the multiple paid when the sponsor sells will constitute the lion's share of the return. As one PE executive said on Friday, "In the '80s the value add was leverage; now the value add is really value add."

Why are people so resistant to persuasion about the death penalty, abortion, and affirmative action?

Finally, these three issues are ones on which it's hard to find a coherent compromise position. You can tell a persuasive story about why tax rates should be higher than conservatives say, yet lower than what liberals want. But it's hard to explain why we should adopt a policy that's somehow in between a strong pro-life position and a strong prochoice view. The same goes for affirmative action and the death penalty.

Annoying arguments about fiscal stimulus:

I'd like to nominate three more annoying pro-stimulus arguments. (4) Arguments failing to acknowledge that some level of debt is too much. What's the limit to further fiscal expansion? (5) Arguments that assume the bond market won't abruptly change its mind about the US cost of borrowing. I find it very annoying when liberals, of all people, tell me that the bond market is a wise forecaster. (6) Arguments that dismiss the tax consequences of ever-mounting debt. Yes, we will owe it mainly to ourselves, but eventually somebody's taxes will still have to rise to service the payments.

Hedging against euro collapse:

GlaxoSmithKline Plc, Britain's biggest drugmaker, has been sweeping cash on a daily basis from euro-zone banks in a bid to protect itself from potential problems in the single currency bloc, its chief executive said.

"We don't leave any cash in most European countries," Andrew Witty told reporters after presenting fourth-quarter results on Tuesday.

How to win a claw game:

It depends on the machine. Claw games can be adjusted to make the prizes either easier or harder to grab. The difficulty is controlled by setting the length of time allotted for each attempt and the number of attempts given for each quarter spent. Operators can also change the strength of the claw's grip. Given these variables, claw-game experts recommend spending a few minutes on the sideline while others play. Once you have a sense of the machine's idiosyncrasies, ask a partner to stand on one side of the machine to help you align your claw on the depth axis. If the prize is a plush toy or stuffed animal, aim for the chest, which allows for the firmest grip. If the claw has a weak grip, try knocking objects sideways into the prize chute. Experts differ as to whether it's easier to win with a three-pronged or a four-pronged claw.

Will the Government Put Money Market Funds Out of Business?

2012-02-07T13:44:00-05:00

Immediately after Lehman Brothers failed, a money market mutual fund called Reserve Primary "broke the buck"--it did not have enough money in its coffers to pay the shareholders what they'd had. Since money market funds are essentially used as bank accounts, this was a big problem--and it triggered a bank run on the money markets, which ended only when the government stepped in and said it would backstop these funds.

Despite their major role in the financial crisis, these funds haven't attracted nearly as much attention in the press, or the wonk-world, as more theatrical financial instruments like synthetic CDOs. Not many financial journalists own synthetic CDOs. Most of us probably have money market accounts.

At last, the government is proposing new rules, which are supposed to make MMFs less risky. The funds would have to raise new capital, and some minor withdrawal limitations would be imposed on customers. They would also have to offer a floating net asset value instead of the current "guarantee" that if you deposit a dollar, you'll always get at least that dollar back.

The last is all by itself disastrous for these funds, whose main attraction is that they act like bank accounts. As for the rest, in a normal interest rate environment, this would be onerous. But with interest rates as low as they are, there's no way for MMFs to absorb the hit by offering a lower return; it looks to me as if the interest rate would probably have to be negative. Which is to say, your MMF would actually be charging you for the privilege of giving you their money.

If passed as proposed, the rules would seemingly put the MMFs out of business. And perhaps that's the point--Paul Volcker, for one, has been an outspoken critic of money market funds, which originated as a way to dodge the interest rate caps on bank accounts during the inflationary 1970s.

Though the SEC has tightened up the rules on what sort of assets the funds can hold, my understanding is that there are large gaps in the way we regulate these funds--as I understand it, in 2010 congress effectively made it illegal to bail out the funds again, but was less explicit about how to keep these funds from starting another run. These rules are an attempt to close that gap--and for sure, if we don't have any MMFs, we won't have any darn runs on them.

But it doesn't actually seem likely that these rules will go into effect as proposed. This is the opening bid in a long negotiation. With another crisis looming in Europe, let's hope it isn't too long.

This post has been updated to clarify the state of rule-making.

Stealing From the D.C. Government Is Still Distressingly Common

2012-02-07T11:55:02-05:00

Any large organization is prone to theft, and the larger the sums of money, the greater the temptations to theft. (I'm told by people who ought to know that if the scale of embezzlement in the retail banking sector were generally known, people would be shocked -- the banks keep it quiet so consumers won't freak out.)

Nonetheless, DC seems especially remarkable. Shortly after I got here, a midlevel bureaucrat in DC's tax office was arrested for masterminding a ring that stole $50 million from the city over the course of 17 years. Several even higher-ranking officials have been arrested for smaller chiseling, and a city council member just resigned over a corruption investigation.

Today brings news of another scam: something north of 100 district employees, current and former, seem to have somehow collected unemployment checks while still working for the city.

But this actually represents progress, of a sort: this isn't corruption, or an organized conspiracy. It's apparently just garden-variety chiseling, of the sort that happens everywhere. It's entirely possible that they got caught simply because they worked for the city, which had relatively accessible records of when they'd actually worked:

The alleged fraud is not complicated, nor is it uncommon in unemployment insurance programs: Workers apply for checks and receive them legitimately for a time but fail to inform authorities when they go back to work.

"Some are people who come in and out of government and never stopped [receiving unemployment checks]. Some may have worked in parts of an agency where for the summer months you don't work," Mallory said. "There are no clear patterns that we can discern. It's just a matter of certifying you aren't receiving income when you are receiving income."

Of course, what allows this sort of petty malfeasance, as well as the more odious crimes, is that DC has a large bureaucracy, but very weak controls. A series of reform mayors has made inroads in this direction, and this latest crackdown is a good sign--but obviously, when City Council members may be among the beneficiaries, it's hard to move as fast as one would like.

Coffee Talk

2012-02-07T08:10:40-05:00

Ten things your IT guy wants you to know:

Yes, I can read your e-mail, yes, I can see what web pages you look at while you're at work, yes, I can access every file on your work computer, and yes, I can tell if you are chatting with people on instant messenger (and can read what you're typing, as well). But no, we don't do it. It's highly unethical and, perhaps more importantly, you really aren't that interesting. Unless I am instructed to specifically monitor or investigate your actions, I don't do it. There really are much more interesting things on the Internet than you.

However, speaking as a former IT person, well, if you were wondering whether the IT guys found that stash of porn you hid in the fonts folder? Yes, yes they did.

One benefit of civil service protections: memos like this:

O, you turkey! You pious turkey! You sanctimonious turkey!

Having belatedly discovered that the Music and Arts High School had something to do with Lincoln Center, having belatedly intervened in the planning process, having delayed construction for a year and added $3.3 million to costs - now, you worry about the Bureau of the Budget " hacking around for six months on the cost issue."

You'll forgive me I see some kinship with George Bernard Shaw's father whom GBS described as "a teetotaler by conviction and a drunkard in practice." But at least Shaw, Sr. had the redeeming characteristic of limiting both preachment and practice to his own liquor.

Greek bondholders actually being pretty reasonable, says Felix Salmon:

Of the three, the bondholders are the least of anybody's problems. In fact, almost everything they've done in recent months can be viewed as a way of showing that if and when everything goes pear-shaped, it's not their fault. They will talk to anybody, agree to pretty much anything, and be perfectly reasonable all along; it's the various governments, here, which are finding it impossible to come to terms.

You can buy caskets at Costco.

Do We Need Even Tighter Controls on Sudafed?

2012-02-06T12:14:39-05:00

Amateur meth labs are really, really terrible. They explode. They infuse the walls, and maybe the local water supply, with toxic chemicals. They pose a serious threat to cops and firefighters, not to mention occupants of the houses they're in. And decontamination seems to be rather daunting.

It's hard to tell exactly what the scope of the problem is; this DEA map unhelpfully lumps together labs, dumpsites, and the equipment used to make meth as "incidents". And besides, lab busts are not exactly a random sample; they're going to vary by things like how much effort local law enforcement is putting into a meth crackdown. Nonetheless, I think it's fair to say that it's a large problem in the middle of the country, albeit one that has abated somewhat due to the influx of cheap meth being professionally produced by Mexican drug gangs.

The problem of meth labs has resulted in ever-increasing controls over the purchase of pseudoephedrine, aka the main ingredient in Sudafed. That's why the stuff on the shelves is now called Sudafed PE, and to get the real stuff, you have to go to the counter and sign a book.

But it's not enough, says Keith Humphreys:

Methamphetamine cooks cannot operate their labs without easy access to the cold medicines that contain pseudoephedrine (PSE). This has resulted in a long-running political battle across the U.S. Many state legislators want to make PSE-containing medicines prescription-only, which as the Oregon and Mississippi experience shows, virtually eliminates a state's meth labs. On the other side, the cold medicine industry, which makes hundreds of millions of dollars a year selling PSE to meth cooks, opposes such a restriction

The industry's response has been to propose an electronic cold medicine purchasing system called NPLEx. The idea is that if someone tries to buy too much PSE-containing cold medicine, the system would notice and block the sale.

South Carolina put it in last year rather than create a prescription-only requirement, and saw meth lab incidents increase by 65%. Kentucky, where the NPLEx system was invented, has had it in place statewide since 2007 and seen meth lab incidents increase by 500%. Meth cooks easily thwart the system by using false ID or by hiring people to buy the cold medicine. The NPLEx system is thus worthless from the point of view of actual effectiveness.

As several people pointed out in the comments, it's unlikely that the cold medicine industry "makes hundreds of millions of dollars a year selling PSE to meth cooks". One prescription-only advocate puts the market for pseudoephedrine products at around $600 million a year; he contrasts this with pharmaceutical company estimates that "only 15 million Americans use the drug to treat their stuffed-up noses, and these people typically buy no more than a package or two ($10 to $20 worth) a year."

Now, personally, I sincerely doubt that the pharmaceutical industry has reliable estimates of how many of their purchasers actually have colds--or that they would share data indicating that half of their revenues came from meth cooks. But let's say this is accurate: half of all pseudoephedrine is sold to meth labs. That still wouldn't mean that manufacturers of cold medicines are making "hundreds of millions of dollars a year" off of the stuff--not in the sense that they end up hundreds of millions of dollars richer. The margins on off-patent medicines are not high, and in retail, 50% or more of the cost of the product is retailer and distributor markup*. Then there's the costs of manufacturing.

But this is sort of a side issue. What really bothers me is the way that Humphreys--and others who show up in the comments--regard the rather extraordinary cost of making PSE prescription-only as too trivial to mention.

Let's return to those 15 million cold sufferers. Assume that on average, they want one box a year. That's going to require a visit to the doctor. At an average copay of $20, their costs alone would be $300 million a year, but of course, the health care system is also paying a substantial amount for the doctor's visit. The average reimbursement from private insurance is $130; for Medicare, it's about $60. Medicaid pays less, but that's why people on Medicaid have such a hard time finding a doctor. So average those two together, and add the copays, and you've got at least $1.5 billion in direct costs to obtain a simple decongestant. But that doesn't include the hassle and possibly lost wages for the doctor's visits. Nor the possible secondary effects of putting more demands on an already none-too-plentiful supply of primary care physicians.

Of course, those wouldn't be the real costs, because lots of people wouldn't be able to take the time for a doctor's visit. So they'd just be more miserable while their colds last. What's the cost of that--in suffering, in lost productivity?

Perhaps it would be simpler to just raise the price of a box of Sudafed to $100. Surely that would make meth labs unprofitable--and save us the annoyance of a doctor's visit.

They can still buy cold medicine, protest the advocates for a prescription-only policy. But as far as I can tell, there's really no evidence that the current substitute, phenylephrine, does a damn thing to ease congestion; apparently, a lot of it gets chewed up in your liver pretty quickly, and because the FDA only allows a low dose to start with, the resulting pills don't seem to be any better than placebo. For people who are prone to sinus or ear infections, that's no joke; one of the main ways you prevent them is by taking a decongestant as soon as you feel the first ticklings of a cold--not four days later, when your GP can finally see you.

Obviously, the suffering of someone caught in a meth lab is much, much higher--but how many of these people are there? Should we deny millions of people a useful treatment in order to prevent a handful of fatalities? Before you answer that, ask yourself whether you'd be willing to stop driving on the grounds that statistically, you're reducing the chances that someone will die. Or to endorse a policy that involved punching 15,000 people in the head, hard, in order to prevent one death.

Perhaps it's unfair of me, but it seems to me that there's a lot of tunnel vision in these proposals. People who present prescription programs as simple and obvious seem fixated on the horror of the stories they are confronted with . . . to the exclusion of the very large costs that they're proposing to impose on the rest of us. All they're interested in is "how do we put an end to meth labs?", a question to which one can reasonably argue the answer is "better control of pseudoephedrine"**.

But no policy question is ever as simple as "How can we stop X", unless "X" is an imminent Nazi invasion. We also have to ask "at what cost?" and "by what right?" Humphreys sort of gestures at this in answer to critical commenters, but why isn't it in the original post? The very large costs of these systems should be front and center in any post that seems to advocate for fairly sweeping controls.

Of course, Humphreys could fairly argue that the real point of his post is to critique the current, failed registration systems that have been implemented as an alternative to prescription-only. But if that is indeed the central point, then I'd ask why his only complaint is the insinuation that industry is pushing these systems so that they can continue to sell to meth cooks? The logical implication of his complaint doesn't seem to have occurred to him: if these systems don't work, then they should be repealed. Full stop. Regardless of what we do about making pseudoephedrine prescription-only, there's no point in spending time and money on a system that isn't doing anything.

But the meth warriors never seem to advocate repealing anything--not unless they can replace something even stricter. This bias towards ever-tightening tends to make me somewhat skeptical when they come forward with yet another restriction that is urgently needed to make America safe.

Update: Adam Ozimek gives us a glimpse of where this ends:

Uncharacteristically for regulation advocates, he provides a glimpse into the next and final step on the slippery slope: complete prohibition.

In 2009, Mexico, which had been the source of most of the methamphetamine on the streets of the United States, went further, banning pseudoephedrine entirely. The potency of meth from Mexico has since plummeted. This is great news. But now the ball is back in our court.
You will notice not an inkling that Mexico may have gone too far. Clearly he believes that if prohibition is what it takes to reduce the potency of meth (notice he's not even promising it would get rid of it) then it's worth it.

* Not profit--retail margins are pretty slim. But the cost of shipping the stuff, putting it on shelves, and selling it.

** Though like many of the commenters on the original post, I'm skeptical that you can extrapolate from something that may have worked in one state, to something that would work nationwide. It strikes me that there may be a reason that the majority of our meth labs seem to be in the middle of the country, which is to say, relatively isolated from easier sources of supply.

Greeks Inch Closer to Default

2012-02-05T21:51:58-05:00

Debt negotiations usually seem to get resolved at the very last minute. After all, the resolution is almost always that someone is not going to get paid as expected, and this gives every "someone" strong incentive to hold out as long as possible, in the hopes that intransigence will get them a slightly better deal.

But even by these standards, the negotiations over Greek debt are really pushing the limit. It's been hard enough getting the private creditors--on whom the entire haircut looks set to fall--to accept losses which one person quoted by the FT puts at greater than 70%. But the Greeks are also proving difficult.

Patience with Greek politicians has evaporated among its creditors. During a conference call on Saturday, eurozone finance ministers bluntly told Athens to deliver on its promises and agree to reforms or face default next month.

Jean-Claude Juncker, head of the eurozone group of finance ministers, told Der Spiegel at the weekend that the possibility of bankruptcy should encourage Athens to "get muscles" when it comes to implementing reforms.

"If we were to establish that everything has gone wrong in Greece, there would be no new programme and that would mean that in March they have to declare bankruptcy," he warned.

Mr Samaras last week threatened to veto the package unless concessions were made on private sector wages, claiming the cuts would prolong a recession already in its fifth year. Mr Karatzaferis also opposes further austerity measures.

The two sides were still far apart over projected cuts of 25 per cent in private sector wages, 35 per cent in supplementary pensions and the closure of about 100 state-controlled organisations with thousands of job losses.

On one level, this is entirely amazing. ~~As has been exhaustively explained everywhere, including~~ ~~this blog~~, Greece is currently running a primary deficit--meaning that even if they defaulted, their budget wouldn't balance. And since defaulting would cut off the flow of credit, they'd actually be worse off than with almost any of the austerity plans proposed by their creditors. And the resulting financial crisis isn't going to do much good for their economy. So watching them threaten to walk away is somewhat reminiscent of that famous moment from Blazing Saddles

And yet, in another way, it's entirely understandable. How would you, Ms. Private Sector Employee, like to be told that you had to take a 25% wage cut because your government had borrowed too much money, and then cooked the books and lied about it? I would be rather miffed, I think.

And when people are angry, they are not always perfectly rational. They will hurt themselves, badly, if it means that they can also hurt other people who they feel have done them an injustice.

Talks will resume tomorrow, and I still expect that ultimately, they'll come to some agreement. But still, it has never looked less likely.

Update: I may have spoken to soon; Greece is now allegedly running a primary surplus.

Komen Changes Its Mind on Planned Parenthood, but Will Donors Come Back?

2012-02-03T11:21:02-05:00

So apparently Susan G. Komen has reversed its decision to fund Planned Parenthood. Just as it wasn't surprising that they might want to gently disconnect themselves from the abortion rights movement, it's also not shocking that once this issue became political, pro-choicers mobilized faster and harder than pro-lifers did. For one thing, as I noted yesterday, the issue of breast cancer has long been broadly within the "women's groups" umbrella that includes abortion rights, and for another, people react more strongly to losses than to possible gains. If Komen had never funded Planned Parenthood, it wouldn't have been a big deal . . . but once they did, withdrawing the money was a political statement.

And just as I wasn't outraged yesterday by the decision to withdraw money, I also think they're well within their rights to reinstate it if they think that doing so will best further their mission. I doubt that this is over -- pro-lifers are now going to have their own round of outraged protest. And to be fair, I do think that they should offer give back any money they raised over the last two days, since that was mostly coming from pro-lifers who were voicing support for the organization's decision not to fund Planned Parenthood. But other than that, I think it's their right to decide what advances their mission--and of course, every potential donor's right to decide if that's what they want to support.

The really interesting question is this: will the pro-choice donors come back? Or has Komen damaged its brand to no purpose?

Coffee Talk

2012-02-03T08:30:43-05:00

Why Your Prius Will Kill our Highways:

This isn't a new problem, but it's getting worse. Since back in the Eisenhower era, the federal government has maintained a Highway Trust Fund, paid for mostly by taxes on fuel, that helps cover the repair and construction of our country's roads, bridges, and mass transit. The idea was that drivers themselves should bear some of the cost the roads they used. Unfortunately, Congress hasn't raised the gas tax since 1993. Since then, inflation has eaten away at least a third of its value.

Why my old neighborhood wants to kill chain drugstores:

"Each block has a Duane Reade," said Kenneth Yoo, owner of Paper House, a party supplies store on Amsterdam near 73rd Street. "They try killing small business. All the stuff we have Duane Reade has, too -- and cheaper."

Stop Fixating on the Administrative Overhead of Nonprofits

2012-02-02T14:29:06-05:00

So naturally, posting on abortion has caused a swarm of very angry people from both sides to show up in my comments. A couple of them are demanding that I "educate myself" about "the facts" on Planned Parenthood and Susan G. Komen, such as the fact that only a minority of the procedures performed at Planned Parenthood are abortions, and that Susan G. Komen spends about 20% of their money on admin and fundraising.

I'm aware of the former, but thought it was obvious that people who don't want to fund abortions probably don't want to fund any abortions at all, much less the 330,000 abortions performed at Planned Parenthood annually--nay, not even if this represents only 3% of Planned Parenthood visits.

The latter is a silly and all-too-common complaint that desperately needs refuting.

To start with, Planned Parenthood spends about 16% of its annual budget on . . . overhead and fundraising. Now that they know, how many of the people who were angry about Komen's overhead are going to also withdraw their support from Planned Parenthood? I suspect the number is zero, but I could be wrong.

But more broadly, the worry about charity overhead has gotten completely out of hand. I've heard from more than one frantic foundation fundraiser who can't raise a dime for overhead--everyone wants their money earmarked for programs. None of the donors seem to realize that even at a very well run charity, the electric bill, accountants, IT staff, grantwriters, compliance experts, investment managers, and yes, fundraisers do not actually get paid by good fairies who drop off wee buckets o' gold at the beginning of every month. Or that unless you have all those boring-yet necessary things, you cannot actually run any programs.

Now, of course, donors should make sure that the causes they support do not simply become sinecures for the people running them. But they should not wring their handkerchiefs when they discover that--whoda thunkit?--charities have to have offices and coffee makers just like all the places that donors work.

Nor is there one right level of overhead for an organization. A group that provides a lot of very expensive services might have a very low central overhead rate, while a group that has a heavy legal compliance burden, or has a large number of low-cost operations to coordinate, or has a small endowment which requires constant fundraising, might have high overhead. Maybe Susan G. Komen's numbers are out-of-whack, but you can't prove it by saying that 20 cents on every dollar go to overhead. You have to assess what they do, and how much that costs.

You certainly shouldn't use those sorts of numbers as a political club. Unless you're very, very sure that none of the groups you support put a lot of their money towards overhead.

Why Did Susan G. Komen Pull the Plug on Planned Parenthood?

2012-02-02T12:38:31-05:00

My colleague Jeffrey Goldberg has done some reporting on the Susan G. Komen Foundation's decision to cut off Planned Parenthood because the organization was under congressional investigation. According to his sources, that was a pretext--the new rule was passed specifically in order to give the foundation a cover for cutting off Planned Parenthood.

Komen, the marketing juggernaut that brought the world the ubiquitous pink ribbon campaign, says it cut-off Planned Parenthood because of a newly adopted foundation rule prohibiting it from funding any group that is under formal investigation by a government body. (Planned Parenthood is being investigated by Rep. Cliff Stearns, an anti-abortion Florida Republican, who says he is trying to learn if the group spent public money to provide abortions.)

But three sources with direct knowledge of the Komen decision-making process told me that the rule was adopted in order to create an excuse to cut-off Planned Parenthood. (Komen gives out grants to roughly 2,000 organizations, and the new "no-investigations" rule applies to only one so far.) The decision to create a rule that would cut funding to Planned Parenthood, according to these sources, was driven by the organization's new senior vice-president for public policy, Karen Handel, a former gubernatorial candidate from Georgia who is staunchly anti-abortion and who has said that since she is "pro-life, I do not support the mission of Planned Parenthood."

Goldberg clearly disapproves of the decision. Though I'm pro-choice, I don't share the outrage that was roiling my Twitter feed this morning. It is, as Josh Barro noted, absurd to pretend that abortion is somehow incidental to Planned Parenthood's services, and since money is fungible, giving them money is probably helping to fund abortion provision. Since I think this is a very tough issue on which reasonable people can disagree, I can see why the federal government, and private foundations, would decline to fund their operations.

Nor do I think that this is somehow fatal--indeed, the news of the Komen foundation's funding withdrawal was met by an outpouring of donations that, as of this writing, has nearly replaced the lost funds. And I don't think that's an accident. If Planned Parenthood didn't provide abortions--if it had decided, post-Roe, to continue doing all the contraception provision and pelvic exams, but to stay out of the abortion side of the business--many of the people who now send them large checks probably wouldn't bother. I'd guess that a considerable portion of their donor base is making an expressive commitment to abortion rights, but of course, the flip side of that is people who make an expressive decision not to give them money.

I do wonder what this moment means in terms of the political landscape. It's possible that this new VP has single-handedly pushed this organization to discontinue their funding, but someone hired her knowing that she was pro-life, and ultimately it was the board that voted to do this, so presumably it must have some support beyond one former gubernatorial candidate.

This strikes me as significant. Susan G. Komen is part of the broad constellation of "women's groups" that tend to hand together on various issues, including (maybe especially) abortion. Why would they cut ties to a group that in past decades would have been a natural ally?

I'm tempted to credit shifting public opinion, but polling about abortion has been pretty stable over the last 15 years. It could be a shift in the donor base, or the board itself. Or perhaps it's a more subtle shift in opinion. While most people think that abortion should be legal, most people don't support the current state of abortion law; polling seems to suggest that the majority either wants abortion to be illegal in all cases, or legal only in the first trimester--and even then, possibly only in the case of rape, incest, and the life of the mother. A majority of people polled say that abortion is morally wrong. And pro-life identification runs neck-in-neck with pro choice.

In that environment, you can see why an organization that does not itself have a mission to support abortion access would want to pull back from funding Planned Parenthood, even for related services. Unfortunately, while they easily could have declined to fund PP without much backlash, de-funding them sends an extremely explicit message that is probably going to cost them significant public support. Which is a pity, because early detection and treatment of breast cancer is a mission that we should all be able to agree on.

Coffee Talk

2012-02-02T08:31:24-05:00

Greek technocrats have a hard time of it:

Greece has won strong endorsements in the past year for shoring up its economic statistics after years of fudging data to conceal its deficits and financial mismanagement, but the man who's responsible for restoring the country's reputation is now the target of possible prosecution. He's been accused of exaggerating Greece's deficits in a conspiracy to strengthen the hand of the European Union and the International Monetary Fund.

Lehman's former CFO gets married:

Erin Callan, the former chief financial officer of Lehman Brothers, all but disappeared from Wall Street after the collapse of the firm.

Recently, however, there was a big development in her life: She was married late last year to her long-time beau, Anthony Montella, in an intimate ceremony at a historical site in Midtown Manhattan.

Never back smug, and other lessons for investors (and voters):

"Politics pretty similar to backing CEO's. Newt may be smart and a good debate guy. But Newt=Smug. Never back smug," More wrote on his Twitter account (@Bobmorevc).

Given how often people harp about the need to find superb management teams for developing new drugs or devices, I followed up with More to hear his thoughts on character traits to back, and to back away from, in life science entrepreneurs.

MF Global customer money may have "vaporized"

As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a "significant amount" of the money could have "vaporized" as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, said a person close to the investigation.

American Airlines Wants to Terminate Its Pension Plan, Lay Off 13,000

2012-02-01T18:43:10-05:00

Details of the American Airlines bankruptcy are emerging. And the details are that AMR wants all of its creditors to take a deep haircut, especially the workers:

The company aims to cut labor costs 20% under bankruptcy protection, and will soon begin negotiations with its three major unions. Some management jobs would also be cut.

AMR also proposes to end its traditional pension plans. The move has been strongly opposed by the airline's unions and the U.S. pension-insurance agency.

CEO Thomas Horton said the company hopes to return to profitability by cutting spending more than $2 billion per year and raising revenue by $1 billion per year.

. . . Horton said cost-cutting will include restructuring debt and aircraft leases, grounding older planes, and changing labor contracts.

This is just the opening salvo in what promises to be a bruising negotiation with the unions. It's not clear that the company actually expects to be allowed to terminate the pension plan. But the threat certainly gives them leverage with the unions, especially the pilots, because if the plan is terminated and taken over by the Pension Benefit Guaranty Corp, the payouts will be capped at around $50,000 a year--far less than pilots get from the current plan.

However, the PBGC is going to fight hard to keep this from happening. Our government-chartered pension insurer is severely underfunded, thanks to congressmen who showed their appreciation for local firms by keeping pension insurance premiums low. And to be fair, it's hard to set these premiums, because what you'd really like to do is risk-rate the premiums--force firms to pay more when their firms look especially shaky. Unfortunately, pensions look especially shaky when the firms that sponsor them look especially shaky, and the PBGC does not really want to be in the business of tipping shaky firms over the edge of bankruptcy and then . . . will you look at that! . . . assuming responsibility for their underfunded pensions. Nor do they exactly want solvent firms to have to pay extra-high premiums in order to compensate for their idiot competitors who poured the pension fund into jackalope ranches and fur-bearing trout farms.

And so the agency is badly underfunded, and very much opposed to taking on the burden of large, underfunded pensions, which would hasten the day when the PBGC itself is forced to apply to Congress for a bailout. They'll fight it all the way through the bankruptcy process.

As I understand it, the judge is likely to listen, too. Bankruptcy courts are not in the business of giving firms a "get out of expensive pension promises free" card; they exist to allocate inevitable losses among creditors. American cannot just apply to have its plan terminated because they'd rather not pay the bill; they have to prove that they actually can't return to profitability without terminating the plan.

I have no idea how that will shake out, of course. Hopefully the company and the union will come to some sort of reasonable accommodation, and we won't have to find out.

How Did Stainless Steel Appliances Get So Popular?

2012-02-01T15:32:04-05:00

Because I am true to my demographic, I watch a lot of HGTV. This is maybe a little weird, because I hate virtually everything that the decorators do on HGTV. If these shows are to be believed, our era will be defined by a style I have dubbed Contemporary Bland + Orange Pillows.

Nonetheless, I watch, because I am fascinated by our national fascination with granite countertops and lime green walls. And the most fascinating fascination of all is the obsession with stainless steel appliances. Don't get me wrong--there's nothing wrong with stainless steel appliances. But it's not like stainless steel makes you cook better; restaurant kitchens use it partly for historical reasons, and partly because it stands up to a lot of abuse, like the really high BTUs their equipment puts out, better than a painted finish. For a normal kitchen, however, modern finishes are just as sanitary, just as durable, and often just as attractive. So why the fixation on stainless steel?

A commenter on a local blog traces the history:

Professional Grade is an odd term - I've heard the term commercial grade used more. A commercial grade stove has burners and an oven that put out a lot more heat/btus than a normal stove.

On a fairly high end GE model I saw recently, it can come with one burner that can produce 17,000 BTUs on "power boil" -and the others do varying amount less. My low end oven can do at max 12,500 BTUs. A Garland heavy duty range (commercial grade) has burners that can produce 30,000 to 35,000 BTUs. They can also come with charbroilers that produce 90,000 BTUs. These type of appliances need a special wider gas line to work. They are more powerful than anything a typical consumer (except my mother) needs. They're like Clydesdales.

Commercial grade appliances also got popular because you could beat the shit out of them and they'd continue to work. Also, as a status symbol, they signify that a) you were a serious cook, and b) you didn't just go to Circuit city to get your appliances. You were not hoi polloi with one of them. Then rich people starting liking the look, and the commercial companies started making retail versions that were more expensive than the commercial grade, not quite as durable, but a lot more user friendly, prettier and didn't require you to structurally reinforce the floor. And now everyone wants stainless steel.

In other words, stainless steel has become a status good. That's why all those young couples on house hunting shows adamantly shake their heads when they walk into an otherwise charming fixer-upper and say "No way. I want stainless."

And yet, it's a very strange status good. The name of the stove is right on the outside, and anyone who actually cares can tell that your $400 Home Depot stainless special isn't a Wolf or a Viking--or even half as good as the 1972 six-burner that you ripped out when you "updated" the kitchen.

So what signal is stainless steel sending? "I like shiny metal"? Or perhaps "I enjoy scrubbing fingerprints off of my appliances"?

CBO: How Hosed Are We?

2012-02-01T13:49:25-05:00

The latest Budget and Economic Outlook is out from the CBO, and boy is it grim reading. The projections continue to deteriorate, largely because the recession has been longer and deeper than the CBO projected. We can now expect $1 trillion deficits even past Obama's first term.

Aha! You want to say. "It's mostly the fault of George Bush and his nefarious tax cuts for the rich!"

If only it were so simple. The ten year cost of the Bush tax cuts is $2.8 trillion, but only about a quarter of that is for the taxes on high earners; the rest is for tax breaks affecting those making less than $250,000 a year. Moreover, "extend tax policies" also assumes that we fix the AMT to prevent it from hitting middle-income voters. That costs another $800 billion over 10 years--about the same as the "tax cuts for the rich".

In other words, the lion's share of that money is going to the middle class, not the rich. To close the deficit, we're going to have to soak them.

Or perhaps you want to say "See! We need to cut spending!" But as Elmendorf pointed out, most of the extra spending comes from two things: higher temporary spending on distressed families through programs like unemployment insurance and food stamps--and the retiring baby boomers. Early on, Rep Doggett proclaimed that we need to return to the fiscal path of the Clinton years, which sounds like an excellent idea, and as I tweeted, I am avid to hear his plan for reinflating the dotcom bubble, and preventing the Boomers from aging out of the workforce.

In other words, none of the possible changes is going to be popular, and so it's no surprise that Doug Elmendorf's appearance before Congress today was dominated by political grandstanding, as members asked extremely loaded questions designed to get Doug Elmendorf to say that we should close the hole by either raising taxes or cutting spending. Elmendorf ably ducked these attempts to lead him, but you could see him steeling himself every time a new congressman took their turn.

There were, however, a few interesting moments to come out of the hearing. The first was a Republican freshman who asked Elmendorf why the inflation projections were so low. The congressman seemed to suspect some sort of Democratic, inflation-loving flim-flammery, but the answer was simple, grim, and illuminating: the CBO is projecting unemployment to stay above 8% for more than a year. In that environment, they expect inflation to be quiescent--especially since the Fed's behavior post-crisis has indicated that they are very, very committed to a 2% inflation target.

There was also a revealing set of dueling questions from Democrats and Republicans. "Isn't it true that deficit-financed tax cuts will depress growth?" asked a Democrat. Indeed it will, confirmed Elmendorf; while the tax cuts boost growth in the early years, eventually the drag of extra debt claws back all your gains, and then some.

The GOP seemed to have taken a body blow until an inspired member asked what the effect of the president's stimulus would be.

The same as deficit-financed tax cuts, said Elmendorf. More growth now, less growth later, because of the drag of debt.

Democrats 1, Republicans 1. Deficits, 2. American public, -$5 trillion.

That's not interesting because it's a huge surprise; this is pretty much textbook macro. It's interesting because most people who have very, very confident opinions on the subject of fiscal policy seem to be unaware of this basic lesson. Deficits are a drag on future growth whether they are spent on supply-side tax cuts, or whizzy infrastructure. If you believe that one is a problem, you should also worry about the other.

Of course, like most commentators on the deficit, I doubt the politicians who asked these questions were actually worried about the effect on their future. Rather, this was a proxy for the argument they wanted to make: for or against lower taxes, for or against higher spending.

But the rest of us should care. Our deteriorating fiscal condition is going to have far-reaching and rather unpleasant effects. And our Congressmen are mostly focused on scoring ideological points.