Relevant and even prescient commentary on news, politics and the economy.

Students who Whine Like This are not Long for Class

The Battle of Late January has ended, as Amazon yields, gracelessly:

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book. We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative. [emphases mine]

Whenever a company talks about how it is looking out for your interested, Jim Henley’s consumer-surplus version of reality notwithstanding, check for your wallet; it’s probably missing.

The first italic is obvious: any firm that calls complete stopping of sales “expressed our strong disagreement” is either really stupid or exercising monopoly power—and no one thinks Jeff Bezos is stupid.

The second is even sillier: Amazon accuses Macmillan of exercising “monopoly power” and declares that they “will have to capitulate.” Someone ask the people at Hachette about how Amazon has to yield in a clash between it and publishers.

We’ve all seen the claim that starts this article: “On Christmas Day, for the first time in its history, (AMZN) sold more digital books than the old fashioned kind.” Not for the Xmas season; just on the day. And even there, it’s an Amazon declaration—not verifiable from the publishers, since e-book sales are confidential information. But Tobias Bucknell lays out the details from his royalty statements:

Well, I have my eBook sales figures of Crystal Rain, a book that has sold in the five figures in print, meaning people who have purchased in print, print online and in bookstores. That’s a nice run, it’s my bestselling book of the 3 Xenowealth books (Crystal Rain, Ragamuffin, Sly Mongoose), but leaves me still a midlist writer….

In 2008, for a brief while, Crystal Rain was available for free via download. Number of Kindle users who downloaded it: low thousands. Number who’ve purchased it for sale after that: low hundreds.

So five figures in volume compared to three figures. That’s an order of magnitude difference.

This magnitude difference holds steady. I sell hundreds of copies of eBooks, and thousands of paper copies.

The difference between Hachette and Macmillan isn’t one of size. It’s that the Amazon monopoly—the proprietary e-reader format of the Kindle—now has another viable rival: the poorly-named iPad, which uses the ePub format that is the standard among non-Kindle readers.

Apple is confident: the iPad will do more things than read books, so it can sell books that can also be read on other devices. Amazon, for all that it offers other products, lacks that ability, and is trying to protect itself through proprietary formatting.

It appears—given the speed with which they ended their ostracizing of Macmillan—that they may need a new business strategy soon.

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Measuring Bubbles

Brad DeLong and John Cochrane agree on something. I must dissent.

Delong and Cochrane agree that

“The underlying decline in wealth from the housing bust was … around $400 billion. …”

Indeed, relative to the size of the economy the losses during the crash of the dot-com bubble were four times as large.

I object that the two sums being compared are not comparable at all.

OK so this was a comment on DeLong so when you see “you” read “DeLong”

Why do you compare the losses during the crash of the dot-com bubble to the $400 billion rather than to the $25 trillion ?

The losses during the crash of the housing bubble are, you claim, $25 trillion.

Someone who has forgotten 2000 (or 1999 or 2001 or … well I clearly am that someone) would compare the $400 billion to the decline in the value of shares of corporations with names which ended .com. I don’t think that was $ 1.2 trillion.

For some reason, you and Cochrane count the whole loss around that time as the shock and only losses on subprime mortgages this time. The former value of the former shares of Lehman isn’t in the sum which equals $ 400 billion.

I think that it is possible to distinguish the shock due to burst bubbles from the total consequences in a meaningful way. I’d say the reasonable comparison is the total decline in share values then to the total decline in the value of housing now. The current bubble loss would be about $ 6 trillion for the USA not $ 400 billion.

It doesn’t make sense to compare total losses then to losses born by banks now and conclude that the losses born by banks now are smaller than total losses then, but a lot of damange was done because all of the losses born by banks now were born by banks.

I’d say that in the US alone, and ignoring commercial real estate, about $ 6 trillion in “wealth” was revealed to be a fantasy.

That’s gotta to hurt. It hurt even more because investment banks shared the rubes delusions this time, but the delusion was huge and the so was the delusione (disappointment)

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Krasting v. Angry Bear on Social Security: ‘Critical’ interest rates

by Bruce Webb

The following is the opening of a proposed post by financial blogger Bruce Krasting.

SSTF – My Numbers (by Bruce Krasting)

A week ago I attempted to get a consensus estimate on some of the critical variables of the SSTF puzzle from the readers and contributors at Angry Bear. I started that effort with what I thought would be the easiest component to estimate; interest rates. That effort failed. It seemed to me that no one reading my thoughts on this cared about interest rates and their impact on the Fund. That is thick headed. They are a central component.

Given that this audience showed no interest in participating in the development of a reasonable set of assumptions, I have used my own. Once assumptions are established and a methodology to use them is created a projection for future annual and monthly results can be established. The actual arithmetic is easy; the hard part is making the assumptions.

Krasting’s full letter and a response thereto will be up on my web-site shortly (I’ll update with the link). But as one of the “thick headed” ones in question I would like to examine a core assumption here, that interest rates ARE a critical variable. Because they really aren’t, not at least over the time period Krasting is using. The following table is derived from Krasting’s numbers. The last column is his calculation for total surplus/deficit, the interest rates are his as well, making the accrued interest calculation one of simple multiplication. The unlabled column is simple subtraction and represents the net negative cash flow from operations in each of the years needed to offset the interest accruing.
Year TF Bal Int Rate Interest Surplus/deficit
2010 $2.5 trillion x 4.58% = $114 billion – $20 billion = $94 billion
2011 $2.6 trillion x 4.40% = $114 billion – $56 billion = $58 billion
2012 $2.6 trillion x 4.20% = $109 billion – $86 billion = $25 billion
2013 $2.6 trillion x 4.15% = $108 billion – $125 billion = -$7.2 billion

Krasting places 2013 at $2.7 trillion but that would not matter much, nor would keeping the interest rate steady at 4.58% instead of having it drift to 4.15%, anyway you slice it you have a TF that WILL throw off some $400 to $450 billion in interest between now and 2013. Under Krasting’s calculations by 2013 cash losses from operations will eat up not only that entire $110 billion or so in annual interest but enough more to actually start cutting into cash principal. Which is a big claim and one which will be discussed in the later post, but which has nothing to do with interest rates. And changes in interest rates of the order Krasting suggests can only move the number up or down a couple of percent from a median of say $425 billion.

Krasting is making the claim that a variable that can move total accrued interest dollar totals by $5 or 6 billion per year critically explains a projected change that would have total income move by $125 billion per year. That just doesn’t make any sense.

Interest is indeed a key variable in Social Security finance (though at least one Bear would dispute whether that makes it a critical variable). But what the simple arithmetic above shows changes in the interest RATE are not critical, instead they are quite literally marginal moving total Social Security financials on the order of +/- 1% per year.

Personally I have used 5% as a nominal interest rate in the past, largely because that is quite close to the average rate during the 1995 to 2005 period in which most of the Social Security debate took form (as shown in the following table And since that nominal rate came in at 4.8% in 2006 and 4.7% in 2007 felt pretty comfortable continuing to do so. If someone wants to insist on using something closer to 4.5% then fine. Because within the broader context of Social Security a 0.5% change in interest rate over a four year period just doesn’t move the macro numbers in any important way. Interest is important in the medium term, interest rates are important in the long term, but short term changes in those rates are simply not important at all.

The Angry Bears are often stubborn but rarely thick-headed when it comes to simple multiplication and addition. Of the six columns in the mini-table above the interesting ones are columns five and six and for those calculations the variations in column three literally effect numbers around the margin. They just are not a central component for calculating short term TF balances.

I have a good idea why Krasting thinks they HAVE to be critical, because tiny variations in interest rates are indeed critical in his particular area of finance. But Social Security is not an investment fund, it works on an entirely different principle. It intersects the investment world without actually being part of it, something I suggest Mr. Krasting is himself too thick headed to quite understand.

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Howard Zinn…not in our high schools either

Henry Giroux says of Howard Zinn:

Howard was one of the few intellectuals I have met who took education seriously. He embraced it as both necessary for creating an informed citizenry and because he rightly felt it was crucial to the very nature of politics and human dignity. He was a deeply committed scholar and intellectual for whom the line between politics and life, teaching and civic commitment collapsed into each other.

Howard never allowed himself to be seduced either by threats, the seductions of fame or the need to tone down his position for the standard bearers of the new illiteracy that now populates the mainstream media. As an intellectual for the public, he was a model of dignity, engagement and civic commitment. He believed that addressing human suffering and social issues mattered, and he never flinched from that belief. His commitment to justice and the voices of those expunged from the official narratives of power are evident in such works as his monumental and best-known book, “A People’s History of the United States,” but it was also evident in many of his other works, talks, interviews and the wide scope of public interventions that marked his long and productive life. Howard provided a model of what it meant to be an engaged scholar, who was deeply committed to sustaining public values and a civic life in ways that linked theory, history and politics to the everyday needs and language that informed everyday life. He never hid behind a firewall of jargon, refused to substitute irony for civic courage and disdained the assumption that working-class and oppressed people were incapable of governing themselves.
Unlike so many public relations intellectuals today, I never heard him interview himself while talking to others. Everything he talked about often pointed to larger social issues, and all the while, he completely rejected any vestige of political and moral purity. His lack of rigidity coupled with his warmness and humor often threw people off, especially those on the left and right who seem to pride themselves on their often zombie-like stoicism. But, then again, Howard was not a child of privilege. He had a working-class sensibility, though hardly romanticized, and sympathy for the less privileged in society along with those whose voices had been kept out of the official narratives as well as a deeply felt commitment to solidarity, justice, dialogue and hope. And it was precisely this great sense of dignity and generosity in his politics and life that often moved people who shared his company privately or publicly. A few days before his death, he sent me an email commenting on something I had written for Truthout about zombie politics. (It astonishes me that this will have been the last correspondence. Even at my age, the encouragement and support of this man, this towering figure in my life, meant such a great deal.) His response captures something so enduring and moving about his spirit. He wrote:

“Henry, we are in a situation where mild rebuke, even critiques we consider ‘radical’ are not sufficient. (Frederick Douglass’ speech on the Fourth of July in 1852, thunderously angry, comes close to what is needed). Raising the temperature of our language, our indignation, is what you are doing and what is needed. I recall that Sartre, close to death, was asked: ‘What do you regret?’ He answered: ‘I wasn’t radical enough.'”

I suspect that Howard would have said the same thing about himself. And maybe no one can ever be radical enough, but Howard came close to that ideal in his work, life and politics. Howard’s death is especially poignant for me because I think the formative culture that produced intellectuals like him is gone. He leaves an enormous gap in the lives of many thousands of people who knew him and were touched by the reality of the embodied and deeply felt politics he offered to all of us. I will miss him, his emails, his work, his smile and his endearing presence. Of course, he would frown on such a sentiment, and with a smile would more than likely say, “do more than mourn, organize.” Of course, he would be right, but maybe we can do both.

Also, Bob Herbert offers us notice:

Mr. Zinn was chagrined by the present state of affairs, but undaunted. “If there is going to be change, real change,” he said, “it will have to work its way from the bottom up, from the people themselves. That’s how change happens.”

We were in a restaurant at the Warwick Hotel in Manhattan. Also there was Anthony Arnove, who had worked closely with Mr. Zinn in recent years and had collaborated on his last major project, “The People Speak.” It’s a film in which well-known performers bring to life the inspirational words of everyday citizens whose struggles led to some of the most profound changes in the nation’s history. Think of those who joined in — and in many cases became leaders of — the abolitionist movement, the labor movement, the civil rights movement, the feminist revolution, the gay rights movement, and so on.

Think of what this country would have been like if those ordinary people had never bothered to fight and sometimes die for what they believed in. Mr. Zinn refers to them as “the people who have given this country whatever liberty and democracy we have.”

Our tendency is to give these true American heroes short shrift, just as we gave Howard Zinn short shrift. In the nitwit era that we’re living through now, it’s fashionable, for example, to bad-mouth labor unions and feminists even as workers throughout the land are treated like so much trash and the culture is so riddled with sexism that most people don’t even notice it. (There’s a restaurant chain called “Hooters,” for crying out loud.)

I always wondered why Howard Zinn was considered a radical. (He called himself a radical.) He was an unbelievably decent man who felt obliged to challenge injustice and unfairness wherever he found it. What was so radical about believing that workers should get a fair shake on the job, that corporations have too much power over our lives and much too much influence with the government, that wars are so murderously destructive that alternatives to warfare should be found, that blacks and other racial and ethnic minorities should have the same rights as whites, that the interests of powerful political leaders and corporate elites are not the same as those of ordinary people who are struggling from week to week to make ends meet?

Mr. Zinn was often taken to task for peeling back the rosy veneer of much of American history to reveal sordid realities that had remained hidden for too long. When writing about Andrew Jackson in his most famous book, “A People’s History of the United States,” published in 1980, Mr. Zinn said:

“If you look through high school textbooks and elementary school textbooks in American history, you will find Jackson the frontiersman, soldier, democrat, man of the people — not Jackson the slaveholder, land speculator, executioner of dissident soldiers, exterminator of Indians.”

Radical? Hardly.

Mr. Zinn would protest peacefully for important issues he believed in — against racial segregation, for example, or against the war in Vietnam — and at times he was beaten and arrested for doing so. He was a man of exceptionally strong character who worked hard as a boy growing up in Brooklyn during the Depression. He was a bomber pilot in World War II, and his experience of the unmitigated horror of warfare served as the foundation for his lifelong quest for peaceful solutions to conflict.

He had a wonderful family, and he cherished it. He and his wife, Roslyn, known to all as Roz, were married in 1944 and were inseparable for more than six decades until her death in 2008. She was an activist, too, and Howard’s editor. “I never showed my work to anyone except her,” he said.

They had two children and five grandchildren.

Mr. Zinn was in Santa Monica this week, resting up after a grueling year of work and travel, when he suffered a heart attack and died on Wednesday. He was a treasure and an inspiration. That he was considered radical says way more about this society than it does about him.

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An Alternate Theory about the Root Cause of the Current Economic Crisis

Martin Ford offers further thoughts on where we are headed.

An Alternate Theory about the Root Cause of the Current Economic Crisis

Bernanke’s speech in Atlanta a month ago focused a lot of attention on the debate about the forces that led to the current crisis. Was it primarily Greenspan’s low interest rates, or as Bernanke suggested, was a lack of regulation and oversight a more important issue? Nearly everyone seems to agree that the crisis was brought on by some combination of these factors. In other words, the current situation is viewed almost entirely in financial terms.

While there is no doubt that the financial meltdown was the proximate cause of the current recession, is it possible that a more fundamental cause exists? What if the housing bubble and the financial crisis were merely symptoms of something even bigger—perhaps of a structural shift occurring in the broader economy?

I’ve argued here previously that advancing automation technology is likely to result in structural unemployment in the future. In fact, I think this is a trend that is already well underway. The last decade has been characterized by substantial advances in information technology and fairly dramatic increases in productivity. Average workers have seen stagnant or even decreasing real wages, while health care costs have been exploding. Until the onset of the current crisis, official unemployment numbers were low, but those statistics fail to capture underemployment, such as workers who are forced to work multiple part time jobs with no access to benefits.

Globalization, of course, gets much of the blame for the plight of average workers, but the reality is that advancing technology has a larger impact. Jobs are not just moving to China—they are being automated away completely. This is happening not just in the United States but in low wage countries as well.. And it isn’t just in manufacturing; as I’ve pointed out here previously, service sector and knowledge worker jobs are increasingly subject to automation as well.

As the dual forces of technology and globalization progressed over the past decade, I suspect it became pretty clear to most average workers that holding a job at the prevailing wage offered little hope for getting ahead. Recognition of that reality certainly played an important role in the politics that led to the creation of subprime lending programs. You can make a pretty strong case that the housing bubble was caused not simply by low interest rates but by widespread recognition that investing in a home represented perhaps the only viable hope for a typical American family to achieve any measure of prosperity.

The last decade also saw a massive shift away from consumer spending supported by wages toward spending supported by debt (much of it anchored to inflating housing values). That debt-enabled spending drove economic growth not just in the U.S. but, of course, in China and in the rest of the developing world as well. Was all this really caused by the Fed’s policy? Or was it fundamentally caused by advancing technology (as well as globalization) driving discretionary incomes down to a level where broad-based consumer spending became unsustainable without reliance on debt?

I think that is a very important question. Virtually all mainstream economists are focused on a financial solution to the current crisis involving some combination of monetary policy, additional stimulus and re-regulation. If it it turns out that the root cause of the crisis is really technology, rather than finance, those solutions will simply not be sufficient in the long run. Technology is relentless. Automation will never stop progressing, and no conventional financial or monetary policy can, by itself, address that issue.

In my book, The Lights in the Tunnel, I make the case that a basic shift is occurring in the economy. Technology is becoming autonomous, and job automation will invade virtually every employment sector. The result will be structural unemployment and declining wages for all but a tiny (and shrinking) elite. I think it is very possible that the beginning of that trend underlies the current crisis to a significant extent. I suspect that very few people will agree with me on this, but if I’m right, the implications are scary: it means that virtually everyone is focused on solving the wrong problem.

Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at

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Cui Bono? The Kindle

John Scalzi makes a clear case that Amazon’s determination to subsidize the Kindle is coming at the expense of Authors’s and their Publishers:

This asinine jockeying over electronic book prices has very little to do with what’s actually good or useful for anyone other than the manufacturer of a piece of hardware… who also happens to be a book retailer.

Since this model is the same one as is used by cell phone providers, we come back to Stan Collender’s question of two weeks ago:

That begs an interesting question about my existing phone and contract: Since my existing phone was paid for over the past 24 months, why doesn’t my current Verizon bill fall by the monthly amount that was priced in to my payment 2 years ago? Isn’t that a rip-off as well?

Yes. It’s called monopoly profits.

UPDATE: Charlie Stross correctly piles on: can kiss my ass. Shorter version: they’re engaging in monopolistic practices that damn well ought to be illegal, in an attempt to use their near-monopoly position to fuck over authors and bring publishers to heel.

Which is more concise than what I said below. That’s why he gets, and earns, the Big Bucks (well, Quintessential Quid, in his case).

UPDATE 2: Via Felix’s Twitter feed, Marion Maneker at The Big Money corrects Henry Blodgett:

Books are, within reasonable limits, demand-inelastic. Just as movies are. Demand comes from the quality or popularity of the book, not the price. We know this because the great transformation of the book business over the last two decades has been to shift readers from mass-market paperbacks to hardcovers sold at discounted but still higher prices. Readers have been paying more for James Patterson and Dan Brown, not waiting for the cheaper mass market paperbacks.

Consumers trade money for time. And publishers should have the freedom to set their prices at what the market will bear, not what suits Amazon’s–or Apple’s–needs.

The pricing pressure in books comes not from customer demand but from retailers fighting over market share. That’s what Barnes & Noble (BKS) did to independent bookstores and Costco did to Barnes & Noble. Now Amazon’s doing it Costco with the Kindle.

Via Patrick, of course.

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Beware of Doug

Robert Waldmann

The Congressional Budget Office is different from you and me. Their forecasts are authoratative — literally. The rules of the House and the Senate refer to CBO estimates and forecasts not some debatable underlying reality.

Hence this slightly edited dialog

Sen. Max Baucus, Chairman: [skip]
We’re not in the old situation where Sen. Grassley once said whatever CBO says is God, you’re God. My judgement, you’re not God.
Dr. Elmendorf: Senator, may I respectfully disagree …

OK so the elided text begins

Douglas Elmendorf, CBO Director: Correct

so way back then Elmendorf agreed that He was not God. At the moment it seems that He and Baucus are the only people who still hold that opinion.

In the awesome missmatch Barack Obama vs the House Republican Study Group where 90% of the brains were in Obama’s skull, one of the key takedowns was when Mike Pence claimed that Obama had promised to consider a Republican health care proposal and yet he hadn’t considered the House Republican’s health care proposal. Let’s role the tape

OBAMA: It’s not enough, if you say, for example, that we’ve offered a health care plan

You know, if I’m told, for example, that the solution to dealing with health care costs is tort reform, something that I’ve said I am willing to work with you on, but the CBO or other experts say to me, you know, “At best, this could reduce health care costs relative to where they’re growing by a couple of percentage points or save $5 billion a year, that’s what we can score it at, and it will not bend the cost curve long term or reduce premiums significantly,” then you can’t make the claim that that’s the only thing that we have to do.

So here Obama is debating Pence about whether the Republicans offered an actual plan and the judge of the debate is Doug Elmendorf, who is, technically not God (yet).

Even more bizarre is this contribution to the debate between Paul Krugman and SAOs (senior administration officials). Krugman supports hiring subsidies. They weren’t in the stimulus plan (but Obama just proposed them — good luck with the Senate on that). Krugman basically declares he has been proven right, because the CBO agrees with him.

“the idea was never taken up, and my understanding is that this was due to skepticism on the part of those SAOs. Now maybe they were right — but CBO disagrees. “

OK this is a debate between Nobel Laureate Clark Medalist Paul Krugman and (maybe among others) Clark Medalist Larry Summers and the judge is non Clark Medalist Doug Elmendorf.

I remember back before Doug was God. Through no merit of my own I was around the sanctum sanctorum of policy relevant economics the NBER. Krugman and Summers had big offices. Doug Elmendorf shared as small office with other research assistants.

This cartoon was on the door of that office.


Mike Pence is dumb as a bag of hammers, but he should have been able to understand the cartoon. I mean he only had to read 3 words.

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